28 Nov Midwest is key player for Biofuels industry
I have to admit that I was pretty ignorant about the whole topic of biofuels until I helped organize a recent iBIO (www.ibio.org) event on this topic.
While assembling the speakers helped illuminate me, it was really not until I sat through their combined presentations and listened to some of the excellent Q&A that I really felt somewhat knowledgeable on the subject.
Of course the case for biofuels, or renewable energy, is compelling given the recent ramp-up of the cost of gasoline in the U.S., which quickly more than doubled from well under $2 per gallon to over $3 per gallon and heading to $4 per gallon as a result of the impact of the recent battery of hurricanes on Louisiana and Texas, where an important part of the U.S.’s oil refinery business is located. Now that the supply crisis seems to be momentarily resolved, in part due to the federal government’s decision to release some of its U.S. strategic stockpile oil reserves, the price at the pump of gas has rolled back to the $2.20 – $2.45 per gallon range. Previously, we used to be mortified at this price level; now it seems cheap after pushing past the $3 per gallon level.
Quite frankly, we are pampered here in the U.S. Anyone who has done any traveling around the world would know that the U.S. price for gas is artificially low. In most European countries, gas ranges from $4-6 per gallon or more.
The biofuels event at Bradley University in Peoria featured an interesting array of panelists including representatives from:
• Exxon Mobil
• Illinois Corn Growers Association (corn is the main ingredient used for ethanol while soybean is the main ingredient used for biodiesel)
• Argonne National Labs (Energy Systems division)
• University of Illinois/Champaign-Urbana (Institute for Genomic Biology)
• U.S. Department of Agriculture (National Center for Agriculture Utilization Research)
• CSX Corp. (the railroad company)
An initial presentation by Exxon Mobil which forecast oil growth and needs until the year 2030 shows that the world currently consumes about 240 million barrels of energy daily. From the period 1980 to 2003, world energy growth requirements grew an average 1.6 percent each year. This growth is projected to increase slightly from 2003 to 2030, to about 1.7 percent growth each year, reaching about 340 million barrels daily of energy consumption.
Currently, about 50% of the world’s energy needs are supplied by oil, with the remaining energy requirements coming from natural gas, coal, and other sources. The “other” category currently represents about 45 million barrels of energy daily, and is expected to grow to 60 million barrels daily by 2030. The “other” energy category includes:
• Nuclear (holding pretty steady)
• Wind & Solar (the smallest area)
• Biomass (the largest area representing about 60% of the “other” category)
Biomass, in case this term is unfamiliar to you, is the use of crops (corn, soybean, etc.) to create fuels.
Perhaps another way to look at energy consumption, in a manner that we can all relate to, is the growth of automobile use:
Fuel Consumption for Cars – Major Regions
The above chart is somewhat mind-blowing. Look at some of these trends:
• It is hard to believe that the U.S. car market, which one would have thought as already highly saturated, will grow another 38% over the next 27 years, versus only 17% in Europe and almost 10 fold in Asia Pacific (mostly fueled by China and countries such as Thailand and Indonesia); it also shows how much we (the U.S.) are, and will remain, a car-dominated society.
• Although U.S. fuel efficiency will improve, it is still substantially behind Europe, and surprisingly remains very low in spite of the growth of the hybrid segment.
• The Europeans seem to have managed their growth in a reasonable manner, most likely due to the high price of gas, and generally excellent mass transport.
In the U.S. today, it is frequent to find that most gas we purchase at the pump has some ethanol content (from between 10-15%), which in general is derived from corn. In fact, 78% of the gas sold in Illinois contains 10% ethanol, according to the Illinois Corn Growers Association. Given that Illinois is one of the top states in the U.S. for corn production, and the Midwest has the highest concentration of both corn and soy production, there is a tremendous amount of biomass available for conversion into biofuels.
There are currently three ethanol production centers in Illinois up and running, but there are another 14 in the works which would mean that Illinois would have 17 ethanol production centers in the near future.
Illinois currently exports 41% of its corn crop to other countries, with another 11% exported to other states; the remaining corn is used for feed and biomass, and other processing. It would appear that the use of corn as biomass for renewable fuels garners a higher price than currently obtained via exports, which raises the question of whether Illinois farmers would be better off rechanneling these sales to biofuels. The problem would appear to be, at the moment, the lack of ethanol biorefineries.
A similar case could be also made for soybeans which is the basis for biodiesel with a couple of other complicating factors:
• The U.S. car market mostly uses gas and not diesel (this is contrary to Europe where a much greater use of diesel is used), except for trucks
• The cost to produce biodiesel is apparently still high, so improvements on reducing costs in this area are needed for this to be competitive on a world level with regular diesel.
Some food for thought: the Illinois corn crop from 2004 was 12 % higher than the record crop of 2003 so there are still “piles” of corn around. The 2005 crop, while not as good as 2004, was still pretty high in yield, resulting in further “piles”.
Traditionally, some of the arguments against biofuels have been:
• The cost of creating theses fuels is much higher than traditional petroleum exploration, production and refining.
• More energy is needed to create a BTU of biofuel than biofuel itself produces.
However, these arguments have fallen by the wayside due to:
• The impact of biotechnology on crop yield productivity
• Improved biomass refinery methods
• The significant increase in the price of oil
• The continued rise in oil needs in the U.S. and the reliance on oil imports particularly from countries at odds with the U.S. (Venezuela, Iran, etc.)
Ethanol production from biomass (corn) has grown about 20% per year reaching about 280,000 barrels a day, up from 120,000 barrels a day in 2001 and 10,000 barrels a day in 1980. Current forecasts are that 2012, ethanol production from biomass will double to 560,000 barrels a day, and eventually reach 3.5 million barrels a day.
But the new biorefineries in the Midwest will not only produce fuels, but chemicals, polymers, and consumer products.
The Department of Energy is providing incentives for this trend and has set a goal that by 2020:
• 10% of transportation fuel will be supplied by biomass.
• biopower will supply 5% of industrial and utility power demands
• biomass-derived chemicals and materials will account for 18% of U.S. targeted chemicals
It is believed by a number of scientists, that U.S. crops could eventually supply all U.S. transportation fuel needs: 1.3 billion tons of biomass equals 130 billion gallons of ethanol (according to Argonne scientists). The Midwest is uniquely positioned in the U.S. to capture this biomass/renewable fuels market.
But biotechnology could yield even further improvements in the area of biofuels through the development of butanol from corn, which is a superior fuel replacement/extender, as butanol has higher energy content than ethanol. Additionally butanol has storage advantages and can be used not only in internal combustion engines but in diesel engines, and is essentially non-polluting.
Butanol production can be further enhanced via the utilization of a micro-organism known as C. beijerinckii. The genome of this organism was sequenced by the Department of Energy’s Joint Genome Institute and the determination of gene functions is currently underway, but it is believed that this organism can produce higher butanol yields.
Food processing giant ADM recently announced the acquisition of biodiesel production facilities in North Dakota, and it would hardly be surprising to see this company and companies such as Cargill moving into this field in an aggressive manner.
What is surprising is that the traditional oil companies do not see biofuels as their bailiwick, as their business model is based on the discovery and extraction of oil from various sources around the earth. The biofuel companies of the future may well be the food processing giants which are already used to extracting end products from crop waste products. Once again, the Midwest is uniquely positioned here with some of the largest food processing companies in the world.
Still another reason that the Midwest has a strategic advantage in this area is the fact that ethanol production, produced most abundantly in the Midwest, would be carried to the rest of the U.S. via rail. Most of the major rail lines all come through Chicago and the Midwest. The railroads are not only seeing the increase in ethanol production, but responding to it by creating new rail lines from the source of production to major sites on the east and west coasts. Additionally these railroads themselves are big consumers of biofuels.
The concept of biofuels is a fascinating story. If the U.S. would just raise the price of gas to provide further incentives for increasing efforts to improve biofuel development and reduce reliance on non-U.S. fuel imports (and reduce gas consumption), the U.S. could see significant growth in this new industry.
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