Shell has announced that it is creating a $21 billion joint venture (that’s billion, with a B) to produce fuel ethanol with Brazilian ethanol producer Cosan. Sugar cane will be used as the feedstock. The venture will be one of the top three ethanol producers in the world–so far.

I love some of the promotional tag lines in the biofuels arena, and the newest one, courtesy of Joule Biotechnologies, is “fuel from thin air.” The Massachusetts-based firm has developed a genetically-engineered microbe that, according to the company, converts carbon dioxide, sunlight, and standard nutrients into ethanol. Joule estimates based on its lab data that the process can produce 25,000 gallons of ethanol for $50 per barrel. A pilot plant to prove this is planned for a yet-to-be-disclosed location in the American Southwest. Hold on to your horses!

What would you call a company that uses a microorganism to produce fuel? Well, according to Bill Sims, CEO of Joule Biotechnologies, not a biofuels company.

Sims was only announced as CEO of Joule yesterday, but he is wasting no time in trying to shine a public light on the company, although his comments are not always very illuminating. Joule has developed what it calls a HelioCulture system that concentrates sunlight and relies on a “highly engineered synthetic organism” that is unidentified but is “not algae” to convert CO₂ and nutrients to produce fuels and chemicals. But since no biomass is used, Sims is trying to avoid the “biofuels” moniker and what he considers to be the negative PR that comes with it.

The basic concept is termed “revolutionary” by Sims, and appears to be similar to that of Craig Venter’s company Synthetic Genomics, which recently announced a large commercialization agreement with Exxon Mobil.

According to Sims, Joule hasn’t worked out its business model yet, preferring to wait for the market to determine whether it is better to produce and sell fuels or license the technology to fuels producers, but that didn’t stop Flagship Ventures from making an initial investment that is termed “substantially less than $50 million.”

It all sounds great, but I see one drawback right away. Ethanol is planned to be the first product, and ethanol is a lousy fuel. And, I am sorry about this Bill, but I am tagging this post under biofuels and biofuels companies. I really wouldn’t know how else to categorize it.

South Dakota-based POET Bioenergy is scouting for acquisition among distressed assets. CEO JEff Broin believes that his company’s superior technology allows certain unprofitable ethanol producers to become profitable if only they could adopt POET’s BPX process, producing up to 3 gallons of ethanol per bushel of corn.

T. Boone Pickens on ethanol as a fuel: “It’s an ugly baby, but it’s our ugly baby.”

To read our previous take on ethanol as a fuel, click here.

Frequent and often heated debate has erupted over the movement toward—and heavy subsidization of—biofuels in general, and ethanol in particular. Proponents tout the creation of a domestically produced fuel produced from renewable materials and improving economics. Naysayers emphasize the diverting of food crops to produce ethanol, causing upward pressure on food prices.  There are also problems relating to the lower fuel value of ethanol and its inability to be blended with gasoline at levels greater than about 10%-15%. Let’s look at some of these pros and cons in more detail.

First there is The Good. Ethanol is a fuel that can be produced now with existing technology, and there are some valid reasons to produce it. Produced domestically, bio-ethanol serves to both replace oil and decrease our dependence on imported oil. Every gallon of fuel ethanol replaces a bit less than a gallon of gasoline that otherwise would come from petroleum. Irrespective of net energy arguments, using and importing less oil is a good thing. A second touted benefit is economic. While ethanol is not competitive with oil at under around $70-90 per barrel, it does help to place a cap on the price of oil as long as we have a sufficient supply of ethanol to use. This would support an argument for some subsidies so that ethanol is available as a credible substitute for oil.

But then there is The Bad. The main problem currently is that most ethanol used in the USA is derived from corn (In Brazil it comes from sugar cane and a lot of land is being de-forested and converted to sugar production). Thus, there is upward pressure on food prices caused by diverting corn to produce fuel ethanol rather than food and exacerbated by diverting land away from food production to fuel ethanol production. This should only be a temporary condition, however. Virtually everyone realizes that producing ethanol from corn is not a tenable long-term strategy, but rather, is a stop-gap measure for providing ethanol now. Once the cellulose-based technology has been sufficiently developed and is competitive, most corn-based ethanol should be converted to cellulose-based production. Within 2-5 years, the displacement of corn by cellulose-based technology should be underway, and upward pressure on food prices due to fuel ethanol production will abate.

Economics are different matter, however. Ethanol has only about 60% the fuel value of gasoline; thus, a crude calculation using simple energy content measurements says mathematically that we need about 1.6 gallons of ethanol to equal the fuel equivalent of one gallon of gasoline. Based on current production methods, the cost of just the sugar (derived from corn) to produce 1 gallon of ethanol is about $0.80-1.00. Adding costs to isolate and refine the ethanol raises the overall cost rises to about $1.50/gallon or more, which after adjusting for the lower fuel value translates to about $3.00 per gallon equivalent of gasoline once it reaches the gas pumps. Cost reductions will be made over time, but ethanol is not yet on an economic par with petroleum-derived gasoline as a transportation fuel.

Then finally, there is The Ugly. Ethanol is also not as easily transported as gasoline from the production plant to the pump due to its tendency to absorb water from the atmosphere. Existing pipeline infrastructure cannot be used, and requiring special pipelines to be constructed (and this will add to the cost). Ethanol is also corrosive. It is, in fact, illegal as well as unworkable to use ethanol as an aviation fuel for this reason. And then there is the problem of the “blend wall.” Car engines require modification to use ethanol in blends higher than about 15%. Automakers will likely void the warranties for engines that have used gasoline blended with higher percentages of ethanol. All these problems illustrate the impracticality of ethanol as a transportation fuel, and argue for other fuel compounds that do not have these problems—for example, higher alcohols such as butanol or hydrocarbons, which can also be produced by the fermentation of sugars. These significant drawbacks lead to the inescapable conclusion that ethanol is a poor choice as a fuel, and should be replaced as soon as efficient processes to produce alternative fuels, such as butanol or hydrocarbons, have been developed.

Mascoma announced a bioprocessing breakthrough of sorts. The breakthrough relates to what the company is calling consolidated bioprocessing (CBP) – a transformational technology which the DOE/USDA 2006 Roadmap called “the ultimate low-cost configuration for cellulose hydrolysis and fermentation.” CBP  eliminates the need for adding enzymes to process pretreated lignocellulose into ethanol by integrating their production into the processing step. Estimates provided by Mascoma suggest a 60-% reduction in cost using CBP. You can bet that enzyme developers and producers such as Codexis, Danisco, and Novozymes are not cheering this breakthrough.

The biofuel dominoes are starting to fall, at least as far as ethanol as a biofuel is concerned. VeraSun, which had been the second largest US-based ethanol producer, is already in liquidation. Its ethanol plants are being auctioned off or bought up by larger players with deeper pockets and staying power.  The major oil refiner Valero picked up seven of VeraSun’s plants in March. In California, industry sources are saying that previously highly touted biofuels companies Cilion and Codon Devices are heading for wind-down. Cilion is an ethanol venture that counts the well-heeled Khosla Ventures and Richard Branson’s investment group as backers. Cilion had previously announced that it was developing a 55 million gallon per year first generation ethanol plant in Kern County, and had confidently projected that it would have eight plants operating by 2008.  Codon Devices based its biofuels fortunes on its BioLOGIC protein engineering platform.

More failures are virtually certain, with oil prices hovering around the level at which ethanol is uneconomical and with investors far less wiling to part with additional cash. Consolidation will take over in the ethanol industry. Ethanol will still be produced, but only the larger or better-financed players will be able to stay in. Expect the major companies that are committed for the long-term to start buying up assets from the failing companies at attractive prices. These who got in for a quick profit will more likely wind up with pennies on the dollar.

Meanwhile, the trend toward the use of corn to produce ethanol should also start to slow. Producing fuel ethanol using crops and land that could otherwise be used to produce food has created a lot of negative political pressure.  As technology that uses cellulosic waste rather than corn as a feedstock is demonstrated, production will be shifting away from corn and toward the cellulosics. The main problem, as usual, will be economics.

Jim Perdue, the CEO of Perdue Farms is not a fan of fuel ethanol produced from corn.
“We live and die by corn,” he said, citing that since October 2006, the poultry industry spent an estimated $4 billion on corn to feed chickens.
“The reason for losses is not the economy,” he said, and cited the financially failing Pilgrim’s Pride poultry brand that spent $800 million on corn alone to grow chickens. “Ethanol is killing us every day.”

Following in the footsteps of VeraSun, Aventine Renewable Energy Holdings hits the financial wall.

LA Times reports this morning that small ethanol are caught between higher corn prices and competitive big rivals. The larger firms are buying the assets of failed ethanol firms at less than replacement value and becoming highly competitive. ADM and Cargill can just bide their time until smaller firms tottering on the edge of bankruptcy are forced to liquidate assets at bargain-basement prices. Full story here.

An Oklahoma trucker has been charged with dumping about 500 gallons of ethanol in a ditch alongside U.S. 60, according to Missouri Attorney General Chris Koster’s office. Read the story here.

At World Biofuels Markets, Novozymes global marketing manager Cindy Bryant credited the company’s Cellic enzyme product family for “achieving the best cost/performance ratio seen so far” and helping to enable cellulosic ethanol pioneers to make cellulosic ethanol a reality. Bryant said that the company expects enzyme costs for cellulosic ethanol to come down to the $0.50-$1.50 per gallon range by 2010, down from $2.00-$4.75 per gallon in 2007.

Note the wording: she is talking about cellulase enzyme cost only, not the overall cost of producing ethanol.

Verenium’s auditor’s have issued a going concern warning for the company. CEO Carlos Riva denied Verenium was facing a cash crisis. According to SEC filing, Verenium lost $185.5 million in 2008 and has accumulated $622 million is losses since 2006. That’s a lot of green.

This will be our last fuel ethanol company profile for a while, as I want to move on to other biofuels sectors.

Spun out of DONG, Denmark’s largest energy company with annual revenues equivalent to about $7.5 billion, Imbicon has ambitions to launch, in its words, “The New Ethanol.” (caps are Imbicon’s). Just what is The New Ethanol? According to the company, it is a “new engineering and business model that incorporates its proprietary technology into a new pathway for converting biomass to ethanol.” Well, that clears everything up!

Imbicon is partnering with US-based G-Team. Apparently, the Imbicon technology processes waste cellulosics like wheat straw and corn stover into ethanol while also producing electricity and steam that cut the plant’s overall power needs. As an add-on to grain ethanol plants, the efficiency boost comes from processing the waste materials that are not processed now. For nearly six years, Imbicon claims to have been testing, perfecting, and patenting its biomass conversion process at its pilot plant in Denmark. One measure of Imbicon’s cellulosic commitment: building a $50 million demonstration-scale Imbicon Biomass Refinery to showcase the company’s technology. Just how new is this New Ethanol? Sounds like the same old ethanol everyone else makes to me, although the efficiency of the engineering in recapturing lost heat during the process may be top notch. I’ll wait for the pilot plant results to become a believer.