Biofuels: Growing Energy

Conventional crude oil sources provide roughly 75 million barrels per day (mmbpd). Unconventional sources, such as tar sands and oil shale, provide an additional 12 mmbpd. The tar sands will help to replace the decline in conventional supply. However, due to their high cost, the energy intensity to produce them, as well as their limited production potential, fossil-fuel based alternatives cannot replace crude oil.

To offset the looming supply/demand imbalance for oil, a range of alternatives must be developed in tandem. To give you an idea of how much energy we derive from oil: To replace the 87 mmbpd currently consumed, the world would need an extra 4,000 gigawatt (GW) of nuclear power plant capacity to produce a similar amount of energy. There are 440 nuclear power plants operating today; an additional 4,000 nuclear plants would be required to offset oil production. The scale up in wind, solar or any of the other alternatives would be even greater, as they are starting from a much lower base.

In addition to non-conventional fossil fuel sources, various biological sources (plant- and algae-based) have also been developed, or are currently being researched in various labs around the world. This is the focus of the current issue, as we investigate this sector and assess potential investment opportunities.

Biofuels: Energy from Plants

Biofuels, or plant-based liquid fuels, offer a way to produce transportation fuels from renewable sources or waste materials. These fuels can help to reduce net carbon dioxide (CO₂) emissions because the CO₂ emitted during combustion of the fuel is captured during the growth of the feedstock. More importantly for government policy, bio-fuels can be produced domestically, reducing the reliance on imported oil.

Biofuels are distinct from the process of extracting energy from biomass. Electricity and other forms of energy can be derived in direct ways from biomass, for example through straight combustion, gasification or creating biogas. Biofuels are liquid fuels derived from plant matter through a conversion process.

In this issue, we focus on biofuels, and will look at biogas and biomass in future issues.

Biofuels vs Tar Sands

It may surprise readers that total biofuel production actually overtook tar sands production in 2008 (the figure below for tar sands includes both crude oil and tar). In fact, in terms of liquid fuel production alone, biofuel production is roughly double that of the actual crude oil produced from tar sands (excluding tar), and growing at a faster rate.

Figure 1: Oil production from unconventional sources (http://earlywarn.blogspot.com)

As many readers will know, ethanol in the U.S. has been the recipient of huge subsidies, with $3 billion being handed out in 2007 alone. This explains, to a considerable extent, the large jump in biofuel production. However, tar sands have equally been the recipients of massive subsidies from the Canadian government, with roughly $10 billion being handed out between 1996 and 2002, and a further $1.5 billion being handed out currently and over the next 2 years. Direct and indirect subsidies, in the form of tax breaks and otherwise, have been distorting fuel markets (both conventional and unconventional) for decades.

Ethanol Basics

Biofuels include two major types: ethanol and biodiesel. Ethanol, accounting for 85% of global biofuel production, is currently being produced from corn in the U.S. (accounting for 50% of global ethanol production), sugar cane in Brazil, and wheat in Europe.

Research and development efforts into future generations of ethanol focus on cellulosic ethanol (wood, switchgrass, crop waste) and algae-based ethanol. These are also called 2^nd generation and 3^rd generation ethanol, respectively.

Produced from the fermentation of starch-based agricultural products, ethanol is essentially the same alcohol found in beer and wine. Ethanol production is an easy and well-known process.

Figure 2: U.S. Biofuel consumption (2009 level: 10,750 million gallons), http://www.pewclimate.org/docUploads/Figure1.jpg

Ethanol was first blended with gasoline to raise octane ratings, for which it is the cleanest option compared to other methods. The addition of ethanol leads to smoother running engines and a more thorough burn of the gasoline and therefore lower emissions of unburned hydrocarbons and carbon monoxide. Ethanol blends of between 10-15% are now common at U.S. gas stations, as most conventional gas engines and fuel handling systems can handle that level of ethanol without requiring adjustments to internal rubber parts.

Following the Energy Information and Security Act of 2007, ethanol was given substantially more government support. Oil refiners now receive a 51-cent tax credit for every gallon of ethanol they use in creating a blended product, effectively lowering the price of the fuel in the market.

To accommodate this new flood of ethanol production, higher percentage blends were introduced into the market. Blends of over 15% ethanol (such as the E85 blend, sold in a few stations across the U.S.) require special “Flex Fuel” vehicles, as sold by GM, Chrysler and Ford. Flex Fuel vehicles in the U.S. are almost all large SUVs, outfitted with large V8 engines.

High ethanol blends also require tanker truck transportation, since they cannot be shipped via the standard gasoline pipeline network. Transporting high percentage ethanol blends by tanker truck doubles the cost of transporting it relative to shipping gasoline via pipeline.

Biodiesel Basics

Biodiesel, primarily produced from soy in Argentina, canola in Germany, and palm oil in Indonesia, is responsible for the remaining 15% of global biofuel production.

The standard biodiesel production process is arguably simpler than the ethanol process. Biodiesel enthusiasts are able to produce it at home, using waste vegetable oil from restaurants. Called transesterification, the biodiesel process generally derives the fuel from vegetable oils based on the certain crops. Animal by-products can also be a source of biodiesel, such as beef tallow and other animal fats. Fuel consisting of 100% biodiesel can be burned in virtually all diesel engines without modification. This should not be confused with burning straight vegetable oil (SVO), which does require extensive modification of a vehicle’s fuel system.

Issues with Ethanol and Biodiesel

With very strong government support, ethanol is now a large industry in the U.S., producing nearly 11 billion gallons of fuel in 2009. The industry has also experienced considerable criticism, for several reasons.

First of all, ethanol production used up nearly 40% of the total U.S. corn crop in 2009, but only covered 4.5% of total gasoline use in the U.S. Using the entire available corn crop in the U.S. would still only cover roughly 9.5% of U.S. gasoline consumption. Even at current levels, there are serious concerns regarding increasing corn prices leading to higher food costs.

It remains unclear how the U.S. will accommodate the mandated 14 billion gallons of ethanol by 2012, since this will use up 60% of the U.S. corn crop. The ethanol industry in the U.S. has shown that it can respond very quickly to increasing demand, given the subsidies involved. However, this large increase in ethanol production will clearly come at the expense of higher corn and related food prices, leading to a repeat of what happened in 2008.

The Brazilian experience of using sugarcane for ethanol production makes more sense from an energy and environment stand-point, since it has far lower fossil fuel energy requirements than corn ethanol. However, this process cannot be replicated elsewhere, due to Brazil’s unique rainforest climate and soil conditions. In addition, with the U.S. government controlling the price of sugar (effectively subsidising it), American sugarcane farmers make more money converting sugarcane to sugar than they would selling it to make ethanol.

Secondly, there is the issue of reduced vehicle fuel efficiency. A volume of pure ethanol contains only 67% of the energy of gasoline. That means that more ethanol must be  used to get the same driving distance, which offsets some of the apparent cost saving.

In addition to lower fuel economy, ethanol actually increases certain air pollutants. Emissions of volatile organic compounds (VOCs) and nitrogen oxides (NOx) are both higher from ethanol than gasoline, which results in more smog creation.

Another complication of using ethanol, specifically the higher percentage blends, is that they require separate transportation, such as by tanker truck. Using E85 in the national gasoline pipeline network is not possible, as it absorbs water during transit, making it unusable as a fuel and it can corrode pipelines. This added transportation effort leads to costs that are double those of transporting gasoline.

Finally, and the key point to consider for ethanol as a long-term solution to North America’s oil problems: ethanol is barely net energy positive in its production. In fact, its Energy Return on Energy Investment (EROEI) is either around 1.3 to 1, or 0.9 to 1. Debate continues in academic circles as to the real figures. At the most optimistic level, those figures mean that the energy content in a gallon of ethanol is only 30% more than the amount of energy used to produce it. The lower end of the range implies that more energy is used to produce ethanol than the product delivers.

Even the most optimistic figures make it clear that corn-based ethanol is not viable. Even the very energy intensive tar sands currently have an EROEI of around 3 to 1. There is also the issue of water use, as 3 gallons of water are required for every gallon of ethanol, similar to tar sands.

With respect to biodiesel, the overall picture is no better than ethanol’s.

In terms of air pollution, biodiesel has a similarly mixed picture to ethanol. On the positive side, using biodiesel in a “conventional diesel engine results in substantial reduction of unburned hydrocarbons, carbon monoxide, and particulate matter compared to emissions from diesel fuel.” (National Biodiesel Board, NBB) In addition, “the exhaust emissions of sulfur oxides and sulfates (major components of acid rain) from biodiesel are essentially eliminated compared to diesel.” (NBB) However, just like with ethanol, biodiesel produces more nitrogen oxides than petroleum diesel.

 When it comes to vegetable oil production in the U.S., were one to divert the entire U.S. soybean oil production towards biodiesel production, “it could replace only 13 days of current annual U.S. distillate demand.” (Downey, Oil 101) As with ethanol, there is no way that the U.S. could cover its crude oil needs through biodiesel, requiring instead large imports of palm oil from tropical countries like Indonesia.

Like ethanol, biodiesel also contains less energy than its conventional counterpart, however the difference is less drastic (100% biodiesel contains 91% of the energy of standard diesel).

There are no known transportation issues with biodiesel. Regarding water use, the biodiesel production process is less thirsty than ethanol, requiring 1 gallon of water for each gallon of biodiesel.

On the most important point, net energy balance, biodiesel provides a more optimistic picture than ethanol, although there are caveats. Using soybeans and canola as the base product, biodiesel’s EROI is around 3 to 1. This is not outstanding, but nonetheless significantly better than ethanol. Using palm oil as the base product, the EROI climbs to a favorable 9 to 1 ratio. According to a 2008 Cornell study, this is due to “the high productivity of year-round tropical environments and low support energy in processing. Palm oil benefits from small energy cost of expressing oil from seed.”

However, the reality of palm oil plantations in countries such as Indonesia and Malaysia is that it leads to extensive conversion of rainforest and peat lands. This leads to the question: should we be replacing the rich biodiversity of already stressed rainforests in tropical countries in order to fuel the cars of North America and Europe?

Future generations of biofuels: cellulosic ethanol, algae-based fuels and “miracle” plants

Despite several years of research and many promising claims from related companies, cellulosic ethanol remains largely in the research and development stages. Algae-based options are at an even earlier stage. There are also periodic flashes of interest in so-called “miracle” plants, such as jatropha, which enjoyed a lot of hype over the past couple of years.

On the subject of cellulosic ethanol, the reality has not lived up to the hype. While the impression given by industry supporters is that cellulosic ethanol is a relatively new process, cellulosic ethanol has been commercialized multiple times around the world, beginning in 1898 in Germany. The U.S. built two plants during World War I and shut them both down after the war due to poor economics. 

Today, the handful of plants in operation globally have been unable to meet projected rates of production, in most cases being unable to reach even 40% of what was initially expected prior to plant construction. For now, we repeat our assertion made above: cellulosic ethanol is still in the R&D stage. Should we come across a truly viable, publicly-listed solution in this space, we will be sure to introduce it to our readers.

Algae-based biofuels have more recently gained public attention. However, they are even further away from commercialization than cellulosic ethanol. To quote Robert Rapier, an excellent source of biofuel information (http://www.consumerenergyreport.com/blogs/rsquared/): " My conclusion is that with the possible exception of the fermentation approaches, the issues that caused NREL [National Renewable Energy Laboratory] to abandon algae in the mid 1990’s are still pressing issues today. I see very little likelihood that companies basing their plans on either open pond systems or photobioreactors can be successful without heavy, perpetual doses of government funding.”

He further states: “Algae is still a lab project for the most part, and companies that have moved to commercialize it presently have little chance of economic viability. However, having said that, I think there are some niches in which it might eventually work, and I do favor spending research money in the hopes that in 10 or 15 years, commercialization is a realistic goal.”

Next, there is the “miracle” plant jatropha. Supporters proclaimed loudly that here was finally a plant that required little in the way of fossil-fuel input (i.e. fertilizer from natural gas) and water input to make it grow. However, it turns out that jatropha is like any other plant. If your aim is to get significant amounts of plant material for a biofuel plant, it will require the same care, energy inputs and water inputs as other plants.

As a grower of jatropha points out (http://www.ecoworld.com/energy-fuels/jatropha-reality-check.html): “We initially approached the production of Jatropha curcas with great enthusiasm but now have grave doubts as to the commercial viability of the exercise. Certainly, it is unrealistic to suggest tying up vast areas of African land for 4 non productive years and finish up with a crop that will eventually provide a maximum of 3 months productive work with very meager returns to a participating farmer. At least this is our opinion based on practical experience rather than media hype.”

Conclusions

There is no simple replacement for oil. As escalating demand for oil runs up against constrained supplies, the price will inevitably climb.

Tar sands, oil shales and the like are expensive to develop and operate; they are environmentally damaging; and there are practical limits on the amount of oil that can be produced from those sources.

Biofuels are viable only to the extent that governments (that is, taxpayers) continue to provide massive subsidies.

Next generation biofuels are still a long way off in the future. Years of research and development are required before any of the alternatives can be considered as viable alternatives.

Looking into the future

There are clearly challenges ahead, but the long term solutions point towards a mix of the following: lighter, smaller cars, along with the widespread electrification of surface transportation. To be clear, we include light rail, commuter rail and high-speed rail as part of this large-scale shift to electrified transportation.

Oil now powers 70% of the world’s transportation. Changing that situation will not happen overnight. It will require a huge shift in infrastructure. Most importantly, a large-scale transition to electric vehicles will need a fundamental change to the way that electricity is produced.

Robert Rapier, the scientist mentioned above, has calculated that a 36 mile by 36 mile square of solar PV panels in the southwestern US, resulting in 440,000 megawatts (MW) of electrical generating capacity, would be sufficient to offset current U.S. oil consumption. While this is clearly a huge amount, and would require a concerted construction effort, it is not beyond the realms of the possible.

An argument in favour of solar energy is that solar PV cells are far more effective and efficient at transforming the sun’s rays into useful energy than agricultural plants are. In addition, no further steps are required for processing of the electricity into useful energy. Steady progress toward more efficient and lower cost solar cells support the case for solar energy. Subsidies that are now given out to the biofuels industry might be more usefully applied in support of solar.

Wind, geothermal and other alternatives also deserve more government support that will inevitably lead to lower costs and greater efficiencies.

The electrification of transport will be a tremendous challenge and will require more time and effort (and initial government support) than optimists currently claim. Rising costs of conventional energy and growing public support for alternatives will help to push the world in that direction.