In the world of biofuels there is no sector as active as military and aviation biofuels in terms of willing customers. At the Low Carbon Fuel Conference, held over two days in conjunction with the Australia’s Avalon Air Show — customers outnumbered the Australian processing technologies and growers combined.
Imagine that. It’s a scene that you just about never see in business life outside an Apple Store. Airline and defense sector customers half-crazed with desire — working their tails off to jump-start an industry, with a ready assist from the small cadre of enthusiastic high-tech processors and a deep assist from the policy and research community. The guys that actually grow the materials — the future feedstock zillionaires — well, we’re not quite sure where they were.
But they would have been mighty glad to see all the activity aimed at adding value to their crops and land.
Come to think of it — well it makes sense that Australia would be a natural choice where customers and policymakers might gather to see if they could stand up an industry and make some parity-cost low-carbon jet fuels.
Australia and aviation, by the numbers
First of all, Australia depends to a great extent on air transport for its own internal logistics — big country, few people, not so many roads. When you add in the fact that more than 500,000 people (out of a population just over 20 million) are directly employed in tourism — much of that trade carried in, out and around on planes.
And add-in that Australia recently imposed a $23/tonne carbon tax on itself and has erected a slew of funding authorities to jump-start renewables from R&D through to commercial-scale.
Well, it all adds up to a high degree of interest in sustainable aviation.
The aviation industry itself has big challenges on carbon. There’s no commercial-scale solar or wind jetliner even on the drawing board. Meanwhile, aviation fuels have jumped more than 300 percent in price since 2000, and aviation traffic is expected to jump more than 400 percent by 2050.
Today, 27 percent of the operating cost of Qantas is in fuels, and 26 percent of Virgin Australia’s cost is there.
For a whole lot of reasons, then, the airline industry has set itself the ambitious target of achieving carbon-neutral growth by 2020 and halving its emissions by 2050 compared to a baseline of 2005.
What does it all add up to? A customer attitude towards aviation biofuels not entirely unlike the enthusiasm around the launch of the iPhone.
Except for — as Steve Jobs might have said — “one more thing”.
The fuels have to be made at parity cost with fossil fuels — despite the fact that as we have observed previously in the Digest., “someone in the oil business is laughing right now at your concept of scale.”
Over at the Avalon Air Show
Despite the daunting challenges — its a heavy-hitter set that convened on the Avalon Air Show to exchange ideas about aviation biofuels in general and Australia’s opportunities in particular. Producers like Mercurius, LanzaTech, Manildra, Licella Global coordinators like CAAFI. Aussie coordinating groups like the afore-mentioned AISAF and Bioenergy Australia. Policymakers at the state and federal levels. US players like the US Navy, Boeing and USDA. Airlines like Virgin and Qantas. Manufacturers like Boeing and Airbus. Scientists from CSIRO, the University of Queensland, and JBEI. Financiers from the US and Australia.
The Australian roadmap to aviation biofuels is ambitious. Their aspiration targets, established in 2011, called for 5 percent of aviation fuels from SAF (sustainable aviation fuels) by 2020, representing two commercial-scale plants. And a 50 percent target for 2050.
Among the feedstocks in the mix — forestry residues, stubble, bagasse, seed oils, tallow pongamia, algae, coppice and eucalyptus trees. They think they can ultimately generate 4.5 gigaliters from lignocellulose, sustainably — that’s more than 1 billion US gallons per year.
Another candidate — and this is one that Airbus has been intrigued by — is mallee, an oilseed crop. They think that as much as 14,700 hectares of existing capacity would be available in the near term, just in one region they studied in Victoria. Producing 150,000 bone-dry tons of biomass, resulting in 85,000 tons of bio-oil which could be upgraded to 12-18 megaliters of jet fuel.
Virgin’s Robert Boyd was sanguine on the challenges of competing directly with fossil fuels. He noted that oil had standard exploration costs in its best regions of around $20 per barrel, and lifting costs of $15 per barrel, with a price of $93 per barrel. He said that a traditional well and pump system could achieve payback in 50 days on a $500,000 investment. And he noted that BP was able to set aside $20 billion in a reserve against expected fines and restitution in the Gulf of Mexico — yet the set-aside did not have any major structural impact on the company’s share price.
“The key is to unlock capital,” said Boyd. “But we’ll need a level playing field to do it,” he added, noting that the 38-cent incentive for biodiesel was disincentivizing producers to contemplate jet fuels. He warned that if biofuels are not developed, “we’ll regret it in 20 years, for sure.”
Qantas’ Flyn Vam Ewijk noted that the airlines’ fuel costs were expected to soar to $2.8 billion by the first half of 2014 and that the airline had carbon emission obligations being imposed on its operation— leaving the airline the unpalatable options of passing through costs to customers, procuring renewable credits, or developing biofuels. From a first flight in April 2012 (a Sydney-Adelaide return) the airline was collaborating with Shell on developing a feedstock and refining strategy that would bring in a supply of biofuels.
Honeywell’s UOP exec Anjan Ray was on hand to point to some practical ways to reduce the cost of producing aviation biofuels in the nearer term. Chief among them — produce more diesel.
“When we look at producing aviation fuels, studies that look at cost usually make the assumption that the right way to go is producing as much jet as possible. But dialing up the refinery that way — well, you get a lot of jet, but you get a lot of lower-value cuts like naphtha.”
Instead he said, dial-in a mix of around 85 percent diesel and 15 percent jet. He said that the diesel production would offset and amortize the cost of producing jet.
Of course, there are alternatives to utilizing biomass altogether, and LanzaTech CEO Jennifer Holmgren was on hand to talk about the progress in making fuels from carbon monoxide, utilizing steel mill off-gases as the concentrated source — and producing ethanol as an intermediate en route to jet fuel.
LanzaTech has completed two 400,000 liter per year demonstrations of its technology in China — the Bao Steel demonstration is now offline, after hitting all its targets and milestones — engineering now moving onto design of the first commercial-scale plant.
“You are going to lose volume in going from ethanol to jet — and you won;t find customers if you start with a $5 per gallon ethanol and make $10 per gallon jet fuel. You have to get the ethanol cost under $1.50 per gallon.” Holmgren said that she was bullish about ATJ, even though ethanol molecules had potentially higher value than a jet molecule — because ethanol blend wall concerns, and limited distribution expansion opportunities took their toll.
Where is ATJ in its certification process? Earlier this month (February 13th), the draft ATJ spec was submitted to industry OEMs for review, as well as the FAA. Next step would be revision of the spec followed by ASTM balloting.
CEO Karl Seck at Mercurius Biofuels — which is collaborating now with CSIRO in developing its drop-in fuel pathway, said that early technoeconomic analysis showed that Mercurius’ fuel could go as low as $0.98 per gallon for OPEX and less than $5 per gallon for CAPEX, excluding financing charges. He credited the low costs to the technology’s pathway, which avoided enzymes with acid hydrolysis — and noted that the technology was feedstock flexible and, notably, had a short residence time, reducing the plant footprint and capex bill.
That was seconded by Holmgren, who noted that among the attractions of LanzaTech, when she first looked into it, was the technology’s ability to utilize continuous instead of batch processing.
So — all good news.
Show me the gallons
But, as ABFA president Mike McAdams is known to ask, “show me the gallons”.
That’s where we run into the two bottlenecks. Financing and feedstock. Or, rather, affordable feedstock and affordable financing.
In financing, at the conference Westar CEO Cindy Thyfault unveiled a transformative financing product — the Risk Transfer Guaranty Bond — that may clear that bottleneck.
But as John McGrath of Future Farm Industries noted, his group’s studies on feedstock — including both row crops and wood biomass — were turning up ranges of costs between $58 and $138 per tonne.
And we heard throughout the conference about asking prices of up to $130 per ton for wood biomass. Industry needs something like 10 cent sugars and $40 per tonne feedstocks to have the strongest chance of commercializing soon.
High feedstock costs
A report presented by Daniel Klein at the Univesrity of Queensland and JBEI was projecting that, in the near term, pongamia had a cost range of $250-600 per barrel, 200-650 for sugarcane and algae up to $1300 per barrel, for the near term. The figures caused several audience members to bristle and object to what they regarded as old or non-definitive data.
But it demonstrated that, for aviation biofuels, the key is in the feedstocks. Fix those costs — and the rest of the supply chain may fall in line with surprising ease. Note that “may” — because it is decidedly early days.
It is instructive to see companies like Cobalt, Gevo and Solazyme, which were tapped early by the US military to make biofuels — well, most of them are targeting nutraceuticals and chemicals in their early days — where high feedstocks costs pose fewer company-threatening problems.
The Bottom Line
Compared to most precincts in the chase for renewables, Australia is well down the rod. But in sight of the finish line does not mean finished — and that feedstock problem looms large.