As 2014 gets underway, here at the Digest
we resist the first-of-year temptation to look back over the challenges and highlights of the year gone by, and instead once again roll the dice as we list the Digest’s 10 Top Biofuels Predictions for 2014.
The coalition surrounding RFS2 has done an incredible job of protection in 2013. The opposing forces will make another titanic effort in 2014 to derail the Renewable Fuel Standard,, but attempts to repeal are dead.
We also predict a substantial northward revision of the biodiesel target for 2014 after significant negative blowback from stakeholders on EPA’s proposal to hold the biodiesel mandate to 2012 levels in 2014 and 2015.
On Capitol Hill, we see efforts to amend RFS2 by legislative action dying a quiet death as legislators opt to issue a report on RFS2′s shortcomings, and adopt a wait-and-see attitude on whether EPA manages to avoid big RIN prices while continuing to push the mandate numbers forward in a slower yet positive direction.
After a bullish year for E85 in which falling corn prices and rising RIN values made it possible for high-ethanol blends to routinely beat gasoline on price, we see E85 prices settling in at closer to a 50-cent discount to gasoline, down from the 60-70 cent range that was driving E85 sales to near-record levels in states like Iowa. Corn prices will continue to be low through the first half of 2014 (at least), but EPA action on RFS2 will bring down RIN prices and create less need for blenders to discount E85 as a means around the ethanol blend wall.
We see almost all of the action for closed bioreactor systems in the first half of 2014 to be in the nutritional supplements side of the equation, with a focus on omega-3 fatty acids like DHA and EPA. To date, DSM’s Martek unit has been just about the only game in town on DHA; production levels from competitors will be low, but the number of players who announce that they are targeting these markets will continue to increase.
In the second half, attention will shift back to fuels and chemicals as larger-volume producers such as Algenol reveal their plans for commercial-scale production.
4. Sorghum on the rise.
Though camelina, jatropha and other novel feedstocks have grabbed most of the headlines, look for sweet sorghum and grain sorghum (both) to slowly establish itself as the most interesting set of terrestrial alternatives to traditional grain and oilseed crops. Look for a big announce in the first third of the year to give sorghum the momentum for “feedstock of the year”.
5. Asia, Brazil, US continue to be the hot deployment markets.
Despite a continuing array of technologies being developed in the EU, and some pretty substantial assists from national and regional authorities in terms of supporting commercial-scale in Canada, the EU and Australia, the hot markets will continue to be in Asia, the US and Brazil.
Look to companies like Green Biologics, POET-DSM, Beta Renewables and DuPont to make their US commercial progressions increasingly clear. Look for one major commercial scale project announce by late April.
In Brazil, Raizen and GranBio will dominate the fuel headlines, with BP Biofuels as a dark-horse; Solazyme-Bunge’s venture in Moema will be grabbing eyeballs in the first half when it opens. For Asia, look for at least one major new project announce in Indonesia this year as the Asian focus shifts slightly southward.
Models for selling and getting installations of processing technology are everywhere. Build-and-operate, JV, bolt-on, retrofit — there are companies happily pursuing each of those. Straight licensing has been less popular because the capital-intensive nature of building out early-stage companies has made it difficult for companies to see a way to generate investor ROI in giving up so much of the value-chain to customers and partners. But with synthetic biology toolkits becoming well established and technology development costs dropping, look for licensing to make a big comeback. Companies like Genomatica are already leading the way.
7. Mergers & acquisitions
Speaking of Genomatica, we don;t expect that it will be all that much longer that renewable chemicals #1 company will be able to resist overtures on the acquisition front. When and as the company begins to make its third molecular target more clear, companies like BASF may decide that the time has come to buy out the other partners. Other candidates for stake or company acquisition include the likes of Gevo and Ceres that are not well understood by public investors and may be available at nice discounts to the underlying company value.
8. Renewable Chemicals — propylene on the rise?
In 2014, look for another big year on the 4-carbon platform, with BDO and isobutanol still as hot as ever but n-butanol and butadiene increasingly in focus. We expect to see more action on the 3-carbon platform as ethane crackers continue to put pressure on steam naphtha cracking, and leave the world short on propylene.
One expectation is that at least one company capable of making methanol will add-on (or switch to) MTO-like technologies to convert methanol to propylene, as an alternative to making ethanol for an increasingly saturated alcohol fuels market or making gasoline using the MTG process.
9. The Great Green Fleet
Despite occasional dyspepsia on Capitol Hill, the Navy will go forward in spring 2014 with its initial RFP for $4 per gallon, drop-in marine diesel and aviation biofuels. Initial fuel contracts will be awarded in 2015 and first deliveries scheduled for mid-year 2015. The fuels will contain biofuels blends of between 10 and 50 percent. We expect DLA Energy to have a second solicitation in summertime.
First deliveries under the Farm to Fleet program are 330 million gallons (with a minimum biofuels component of 33 million gallons) scheduled for the Inland/East/Gulf Coast fuel procurement region — which includes the Eastern US as well as Guantanamo Bay. The second deliveries under the program are 370 million gallons (with a minimum biofuels component of 37 million gallons) scheduled for the Rocky Mountain / West Coast region.
10. Goodbye, stand-alone ethanol/DDGS plant
If RFS2 pressures on the ethanol industry were not enough, think of all the technologies now available to turn ethanol plants into integrated biorefineries producing either a more significant array of co-products or a higher-value primary molecule. Whether it is corn oil extraction, algae add-ons, isobutanol or n-butanol conversion, switch to milo/biogas, or adding on a source of fermentable cellulosic sugars from crop residues or bagasse— we don’t expect that there will be a sub-50 million gallon ethanol plant surviving that won’t have announced a deal or being in furious negotiation to do so, to expand its product set.
We gave ourselves a full mark for predicting that the US fiscal cliff would be averted, that E15 and blender pumps would struggle to get traction, that RFS2 would survive the first half of 2013 fine but run into huge difficulties in the second half; that the hot deployment markets would be primarily in Brazil and Asia; that there would be at least one key company failure en route to scale-up on the fermentation side (Blue Sugars took care of that, unfortunately), that the story in 2013 would be “gas, gas, gas”, and that US ethanol producers would begin to shift strongly to alternative feedstocks.
We gave ourselves a half-mark for correctly predicting that the cellulosic ethanol space would be dominated by big combinations like POET-DSM, Novozymes-Beta Renewables and DuPont (now incorporating Genencor), plus BP and Shell in Brazil – but we did not correctly identify the GranBio-American Process combination as among the rising players, or the steady progress towards scale at Abengoa Bioenergy.
We gave ourselves zero marks for predicting a surge in drop-in fuels projects, and that predicting that Master Limited Partnerships would find approval in 2013