Back again by popular demand this year at the American Seed Trade Association CSS 2014 and Seed Expo was AgResource Company president Dan Basse giving his economic outlook for the year ahead.

Basse told attendees that the biofuels market is mature now, which means more stagnant demand for corn. “We have an EPA that can’t even make a decision on what the mandate should have been for 2014 and surely can’t make one for 2015,” he said. “We’ll still see corn demand for ethanol somewhere in the vicinity of five billion bushels, but there’s not that growth engine we’ve had in the last five years.”

Basse notes that this crop year is historic in that it’s the first time we’ve seen record world production for corn, wheat and soybeans. “So something agronomically is afoot here,” he said. “World producers are starting to pick up on some of the traits that American farmers are using – whether more seeds per acre, better seeds, better fertilizer…we’re not sure what it is but we’re impressed what the world is producing for grain.”

Lots more in this interview with Basse here. Interview with Dan Basse, Ag Resources

The Minnesota biofuels industry has been evolving since its inception, which was discussed in Part 1 of this feature article. In this part, we look at how the industry is taking shape in Minnesota and what some of the most promising new technologies are on the horizon.

An interesting element of the biofuel industry is that while it is evolving on a national level, it has also evolved locally. Tim Rudnicki, executive director of the Minnesota Bio-Fuels Association, explains that states and regions have differing available resources as well as differing types and tons of biomass available.

“Biofuel producers in any particular region adapt to the availability of various resources including, for example, access to energy, water, transportation infrastructure and so on,” says Rudnicki. “The availability of these important resources helped to accelerate the evolution of the biofuel industry in Minnesota and is what has made, and will continue to make, Minnesota one of the leading states when it comes to the production of biofuels.”

It’s interesting to review what could be deemed the top improvements that the ethanol industry has adopted over the past few years. Randall Doyle, CEO of Al-Corn Clean Fuel, says that since the plant went online they have adapted their process and technology to reduce down time, increase throughput and increase yield.

Al-Corn was designed as a 10 million gallon per year plant, and today they are operating at 50 million gallons per year. “We have increased our fuel ethanol yield from two and a half gallons per bushel to over two point nine gallons per bushel,” says Doyle. “We have added CO₂ recovery, distillers corn oil recovery, and focused on our distillers grains quality to add value to our ethanol production.”

So, what are the new best technologies coming down the pipeline? Rudnicki says the future is very exciting because it will involve many facets including the interface between biological processes and technology. He believes some of the processes to watch include technologies that will enable corn oil to be more efficiency extracted as well as the use of existing biomass.

From an ethanol plant perspective the next three to five years could bring big changes.

Doyle says the industry is waiting to see what will happen with the Renewable Fuels Standard (RFS). The industry has reached the point where ethanol makes up 10 percent of the U.S. gasoline supply and the country needs to see growth in the use of biofuels. Doyle believes the industry will primarily grow through “inside the fence” expansion at existing facilities (for example adding cellulosic ethanol technology or biodiesel plant), and today several greenfield projects are beginning to take shape.

In terms of how consumer access will change, Rudnicki says the ethanol industry will make even more progress including enabling more access to consumers for mid-level and higher blends of ethanol and fueling options.

“It’s fantastic to have this production of ethanol and other biofuels, but those clean, renewable fuels must have access to the market. That’s what will finally help to displace finite fossil fuels and help all of us reduce carbon emissions,” says Rudnicki.

When it comes down to brass tax, the biofuels industry must be profitable. Doyle says ethanol plant operators need to focus on efficiency improvements to reduce their cost of operation and consumption of energy inputs. “They need to focus on making fermentation and starch utilization as optimum as possible, to get all the carbohydrate value out of the kernel,” he adds. “They need to focus on producing co-products with high quality and consistency.  And they need to remain vigilant in their search for new technologies that will bring improvements, or new and more valuable products to offer to the market.”

The Minnesota Bio-Fuels Association is also working with biofuels industry to ensure the industry remains competitive. Rudnicki says one of their key goals is to help lower artificial barriers biofuels face in entering new markets. He also notes that the Association is working with a wide range of stakeholders throughout the supply chain to give fuel retailers as well as consumers fuel choice at the pump.

In addition, Rudnicki highlights the important role state legislation has played in the industry’s growth. Minnesota has created public policies that not only support the production of biofuels but also call for greater use of biofuels. In closing, Rudnicki says, “Minnesota law aims to displace at least 30 percent of petroleum by 2025 with biofuels. That’s good for the economy, saves consumers money, creates greater energy independence and decreases greenhouse gas emissions.”

News

(December 15, 2104) The big news from our nation’s capital this past week has been the passage of the appropriations bill for fiscal year 2015, which began on October 1^st. The federal government had been operating on funding extensions and was facing a deadline that risked another government shutdown. At this writing the bill has been passed that will fund government operations through the remainder of FY2015 and the President is expected to sign it.

The bad news is that some clean energy programs of the Farm Bill were cut, including the mandatory funding in the new Farm Bill approved by the same Congress just this past March.

The following table provides a summary of the funding changes. You can find a summary of 5-year program funding here. Note that “mandatory funding” refers to funding provided in the 2014 Farm Bill unless changed. When mandatory funding is cut, it’s referred to as a “CHIMP” or “Change in Mandatory Programs.” “Discretionary funding” refers to an appropriation made each year by Congressional appropriation committees.

Changes to Farm Bill Energy Title Programs in FY2015 “Cromnibus” Bill

All dollars in millions

The additional $1.35 million in discretionary funding for REAP is restricted to only loan guarantees.

The Biofuels Digest Index, an index of publicly traded biofuels stocks, shed 1.82 percent to close at 58.65 as oil prices and energy stocks continued to tumble.  For the day, Pacific Ethanol (PEIX) dropped 7.47 percent to $9.41, while Amyris (AMRS) fell 4.87 percent to $2.15. Among other equities, Aemetis (AMTX) gained 7.62 percent to $4.66. Overall, declines led advances 7 to 1 for the day.

How does $60 oil impact payback for natgas or hybrid electric vehicles, and cellulosic biofuels?

The going assumption is that low oil prices are bad for alternative fuels — but it’s not always the case.

Consider the competition. Quite a bit of ink has been spilled regarding hybrid electrics and natgas vehicles — as alternatives to petroleum-based cars, and biofuels.

Natgas.

We checked this calculator from CNGnow! This first image we took from the default values on the site, which show annual fuel savings of $2413 and payback in 3.31 years by switching to natural gas.

But how does that look with $2.73 gasoline and slightly higher natgas prices? (In this case, the calculator didn’t allow for anything less than $3.00 gasoline, so we boosted the natgas price by an extra $0.27 to make up the difference).

The results? Not so rosy for natgas conversions. In this case, the fuel savings has dropped to $800 per year and the payback has extended to 10.0 years. Long time to wait to get the money back from an $8,000 conversion.

Bottom line: Gloom.

Hybrid electrics

We checked out this calculator from the Department of Energy. In this model, we chose the Toyota Prius, as an example of a well-known brand. What do we see, based on the $2.68 fuel price the DOE now has as its calculator default?

Bad news for economics-driven buyers. For an owner aiming for a 4-year loan at 4.5% and keeping the vehicle for 5 years (these are the DOE defaults, we didn’t juice the numbers) show an estimated net monthly cost increase of $15.73 until the loan is paid off. But the bad news? Payback takes 5.8 years, or longer than the DOE anticipated the owner would keep the car.

Bottom line: Gloom.

Not a reason not to seek alternatives

Higher costs are no reason, in and of themselves, to avoid alternative vehicles. All alternative vehicles are a good idea, and good for the planet. But, we see that $60 oil is going to offer some challenges in terms of selling consumers on the economics.

Over to cellulosic fuels

Now, let’s look carefully at cellulosic biofuels, specifically at cellulosic biofuels waiver credits, available under the Renewable Fuel Standard in the United States.

Here’s how a waiver credit works.

Each year, the EPA may make Cellulosic Biofuel Waiver Credits available if available production falls short of the schedule set out in the 2007 Energy Independence and Security Act, and we are certainly in one of those “short years” now.

Here’s how a waiver works. In 2010, the EPA made them available at $1.58. Now, each obligated party has to blend a gallon of cellulosic biofuel (up to their obligated amount) — or, alternatively, can buy a waiver credit.

In 2010, the average wholesale price of gasoline was $2.21, which meant that an obligated party could either invest $3.79 ($2.21, the value of the gallon of gasoline and $1.58 for a waiver credit) to sell a gallon of fuel — or buy a gallon of cellulosic biofuel for $3.79 a gallon, or less.

In this way, there’s a price for the cellulosic biofuel market that is transparent to obligated parties, and a price cap, too, to ensure no runaway prices.

Fast forward to 2015

Now, the formula is $3.00 less the wholesale price of gasoline per cellulosic biofuel waiver credit, adjusted for inflation in comparison to calendar year 2008. So let’s adjust that $3.00 to, say, $3.31 to allow for the CPI inflation rate.

The formula for calculating gasoline prices is this:

“The wholesale price of gasoline will be calculated by averaging the most recent twelve monthly values for U.S. Total Gasoline Bulk Sales (Price) by Refiners as provided by the Energy Information Administration that are available as of September 30 of the year preceding the compliance period.”

Based on RBOB wholesale gasoline, the average price for 12 months through September 2014 is $2.85. Which means that the cellulosic biofuel waiver credit should be around $0.46.

Now, RBOB gasoline is trading right now at $1.67, according to EIA spot prices. Which puts a theoretical value of $2.13 per gallon on cellulosic biofuel in 2015, or around $89.46 per 42-gallon barrel. Most technologies say they are competitive with gasoline in the $90-$100 range, excluding subsidy or RIN values.

Bottom line: From gloom to boom.

Fast forward to 2016

Now, the formula remains $3.00 less the wholesale price of gasoline per cellulosic biofuel waiver credit, adjusted for inflation in comparison to calendar year 2008. So let’s adjust that $3.00 to, say, $3.38 to allow for the CPI inflation rate.

We don’t have the full 12 months of data for Oct 2014 – Sept 2015 — so we’ll take the first three months of data (that we do have) and mark that as “to be adjusted later in the year”

The formula for calculating gasoline prices is this:

“The wholesale price of gasoline will be calculated by averaging the most recent twelve monthly values for U.S. Total Gasoline Bulk Sales (Price) by Refiners as provided by the Energy Information Administration that are available as of September 30 of the year preceding the compliance period.”

Based on RBOB wholesale gasoline, the average price for 3 months through mid-December 2014 is $1.99.

Which means that the cellulosic biofuel waiver credit should be around $1.39.

Now, if RBOB gasoline remains at $1.67, that puts a theoretical value of $3.06 per gallon on cellulosic biofuel in 2016, or around $128.52 per 42-gallon barrel.

Bottom line: Boom.

Conclusions from the data

1. Expect tougher selling conditions for natgas and hybrid electric vehicles.

2. There could be boom times for cellulosic biofuels in 2016, and reasonable economics in 2015.

3. Maintaining RFS2 is going to be crucial — otherwise, cellulosic biofuels will be priced out of the market just as US shale oil is getting priced out of the market right now as OPEC drives down the oil price. Leaving the world more dependent than ever on OPEC oil.

4. Cellulosic feedstock may well be at a premium in 2015 and 2016 — depending on how RIN values for advanced biofuels and corn ethanol evolve.

5. As fuel prices decline, fuel consumption is likely to rise, slightly — improving the overall market size for biofuels blends. Both on the biodiesel and ethanol side.

Enviva Holdings LP and John Hancock Life Insurance Co. are partnering to develop industrial wood pellet production plants and marine export terminals in the Southeast and will invest up to $320 million in a joint venture, Enviva Wilmington Holdings LLC, the…

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Tell us about your organization and it’s role in the advanced bioeconomy.

My company spent several years evaluating bioenergy projects for a passive investment group from Australia as well as projects for other private groups. We developed a sophisticated model for evaluating global projects which we now use in developing similar logistics analysis for the oil and gas industry in Pennsylvania and Ohio.

Tell us about your role and what you are focused on in the next 12 months.

I have been the CEO and General Manager with various projects. We are now focused on largest multi tenant trans load facility in Ohio for the oil and gas industry. The logistics analysis is almost identical as that used for bio fuels. We firmly believe that biofuels combined with the unconventional drilling techniques now being utilized will give the U. S. the option to be totally energy independent. However, when one analyzes the international market both industries will thrive better with an international marketing program where the U. S. producers are lowest cost or most competitively priced. The Commodity market world wide offers tremendous options for both industries.

What do you feel are the most important milestones the industry must achieve in the next 5 years?

Must retain competitive world market position and convince policy makers that being world competitive is more important than pursuing domestic competition. The latter is often a juvenile contest on who can influence most the political party policies with little recognition of a national energy goal.

If you could snap your fingers and change one thing about the Advanced Bioeconomy, what would you change?

Reluctance of investors and reluctance of government policy officials to measure success on a global competitive standard versus the self serving rhetoric of various parties.

Of all the reasons that influenced you to join the Advanced Bioeconomy industry, what single reason stands out for you as still being compelling and important to you.

Being an informed party on advanced technology so that I can accurately evaluate various business and policy actions which I express in a weekly market/newsletter where I often reference the goals and objectives of biofuels with those of the oil and gas industry.

Where are you from? 

Native of Indiana—Raised on large farm very active in many forms of agriculture–Educated in Indiana–was Editor College news paper which led to being an investigative news reporter which led to the front gate of U. S. Steel.

What was your undergraduate major in college, and where did you attend? Why did you choose that school and that pathway? 

Mathematics/physics major with a Journalism minor–Ball State University. Chose Ball State because of its reputation as a quality institution with tremendous support from a wealthy Indiana family.

Who do you consider your mentors. What have you learned from them?

Had many noted mentors at U. S. Steel for 25 years–current mentor is probably Warren Buffett because of his very accurate business acumen.

What’s the biggest lesson you ever learned during a period of adversity?

You must be determined with very high standards of integrity–must be willing to face opposition in a very forth right professional manner and you must be able to develop a team of allies often not readily identifiable. I spent about 15 years at U. S. Steel in crisis management and then learned all of the challenges of running your own business including determining the goals of clients as part of convincing them that you were one of the best in your particular field.

What hobbies do you pursue, away from your work in the industry? 

Travel extensively with my wife around the world–quite active in her arts and cultural affairs activities. Partisan sports fan with 20 grandchildren who all seek attention from time to time.

What 3 books would you take to read, if stranded on a desert island?

The three latest from Jack Welch.

What books or articles are on your reading list right now, or you just completed and really enjoyed?

Read probably 100 research articles a day from various sources.

What’s your favorite city or place to visit, for a holiday?

Anywhere in Australia.

A new report by global management consulting and technology services firm Accenture finds that the sustained growth of rooftop solar and other distributed energy resources and energy efficiency measures could cause sufficient loss of demand to drive down…

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In Minnesota, Corn Plus ethanol plant in Winnebago has taken steps to more diligently inspect and maintain equipment that controls air pollutants, under an agreement with the Minnesota Pollution Control Agency (MPCA). The company has also agreed to correct other violations at the plant and pay a $25,141 penalty. State inspections in 2012 and 2014, along with a file review this year, found several environmental violations at Corn Plus.

These violations include venting pollutants to the atmosphere for longer than permitted; failing to inspect equipment and keep records according to permit conditions; failing to calibrate equipment to ensure proper operation to control pollutants; replacing equipment without permits; and allowing night-time noise levels above state standards. Permit conditions and state standards are designed to protect human and environmental health from air pollutants.

Corn Plus has an application pending with the MPCA for renewal of its environmental permits. Under the agreement with the agency, the company must submit more information for that application to move forward.

The penalty and conditions are part of a stipulation agreement between Corn Plus and the MPCA. This type of agreement is one of the tools the agency uses to achieve compliance with environmental laws.

When calculating penalties, the MPCA takes into account how seriously the violation affected the environment, whether it was a first-time or repeat violation and how promptly the violation was reported to appropriate authorities. The agency also attempts to recover the calculated economic benefit gained by failure to comply with environmental laws in a timely manner.

This recent agreement follows actions by Corn Plus to correct past air and water quality violations.

In 2011, the company took several steps to correct air permit violations, including falsifying air monitoring data and paid a $310,000 state penalty. In 2010, the company paid a $200,000 state penalty for water quality violations and agreed to environmental projects at the plant costing at least $691,000. In 2009, Corn Plus paid a $150,000 penalty as part of a settlement with the U.S. Environmental Protection Agency for criminal charges related to water quality violations.