A giant leap to nowhere: Part Two

The economics of the California low carbon fuel standard

AFPM explains that AB 32 requires for-profit fuels producers to modify their products to meet the state’s carbon reduction objective. While biotechnology companies might invest in research and development with the hope of gaining market share in the fuels business, the fuel manufacturers would be investing in cellulosic fuels that would replace the economic fuels that they are already making (and that consumers want).

For refiners, the economics of cellulosic fuels are more likely to be lose-lose (i.e. significant research and development costs to make an unprofitable product) and it looks like the best they could hope for would be win-lose (i.e. develop a technically feasible cellulosic technology, but cellulosic fuel volume gains reduce petroleum fuel volumes without providing an investment return sufficient to keep the refiner whole).

According to the AFPM, since the development of cellulosic fuels technology is essentially a biotechnology problem, the refiners have the disadvantage (and financial risk) of working in an area unrelated to their core technologies. It is not surprising that refiners have declined to accept the financial risk of investing in the development of cellulosic fuels.

You get what you pay for

According to the AFPM, there are currently four cellulosic fuels plants that are preparing to start up un the near future. Combined, their nameplate capacity is 84 million gal./y or 5465 bpd of ethanol (3661 bpd of petroleum gasoline on an equivalent energy basis) and their combined capital cost is reported to be US$ 960 million.

Suppose California needs 125 000 bpd of cellulosic ethanol to reduce the carbon intensity of just gasoline by 10% then the capital costs for enough cellulosic ethanol to satisfy California would be on the order of US$ 33 billion (excludes technology development costs). This level of spending is far less than what NASA spent to put men on the moon so it is no surprising that we are still waiting for cellulosic fuels to appear.

Focus

AFPM accentuates that while NASA enjoyed the luxury of a single, clearly states goal, alignment within the organisation and the funding to accomplish the goal.

In contrast, the refiners whose principle objectives are the satisfaction of their customers and shareholders were handed an objective (in the form of AB 32) that was not aligned with their own objectives, and with no funding to accomplish it.

Hence, we don’t have cellulosic fuels in 2014 because there has not been sufficient development of the necessary technologies.

Adapted from a blog post by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/03092014/giant-leap-to-nowhere-1225/