The Biochemical Industry - Status as of Nov 2015

1. 1
Bruce LaCour, P.E. Mech. Engr.
November 2015
THE BIOCHEMICAL INDUSTRY – 2015 AND
BEYOND

2. THE BIOCHEMICAL INDUSTRY - STATUS AS OF NOV
2015
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• THE BURGEONING BIOCHEMICAL INDUSTRY IS IN A STATE OF TEMPORARY
CHAOS DUE TO THE RECENT DECLINE IN THE PRICE OF CRUDE OIL.
• THE EXHUBERANCE CAUSED BY THE 2008 TO 2014 SHALE OIL AND GAS
CRAZE IS A TEMPORARY PHENOMENUM AND IS COMING TO AN END. MANY
WILL SOON REALIZE THAT SHALE OIL AND GAS WERE A RETIREMENT GIFT
FOR THE TRADITIONAL PETROCHEMICAL INDUSTRY.
• THE PRODUCTION FROM SHALE OIL HAS STARTED TO DECLINE AND TOTAL
U.S. CRUDE OIL PRODUCTION WILL START TO DECLINE AGAIN
SIGNIFICANTLY IN LATE 2016.
• THE DECLINE IN CRUDE OIL PRODUCTION WILL MANIFEST ITSELF IN THE
RESUMPTION OF INCREASING CRUDE OIL IMPORTS PREDOMINANTLY
FROM THE MIDDLE EAST AND CANADA ALONG WITH RAPIDLY INCREASING
GASOLINE AND DIESEL PRICES.
• PRESSURE TO RESUME THE GOALS OF THE 2007 RENEWABLE FUELS
STANDARD IS INCREASING ALTHOUGH TEMPORARILY DELAYED.

3. RECENT HISTORY OF THE BIOCHEMICAL INDUSTRY
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• BIOFUEL PLANTS BEGAN TO APPEAR IN THE EARLY YEARS OF THE LAST
DECADE. THE ENERGY POLICY ACT OF 2005 (EPACT OF 2005) PROVIDED
SUBSIDIES FOR ETHANOL PRODUCTION WHICH SUBSTANTIALLY
INCREASED THE NUMBER OF THESE PLANTS.
• MANY CORN ETHANOL PLANTS WERE BUILT FROM 2005 TO 2008 IN THE
MIDWEST BASED ON NOW OUTDATED WET MILLING AND DRY MILLING
PRODUCTION TECHNOLOGY. ALSO DURING THIS PERIOD, BIODIESEL VIA
SOYBEAN OIL PLANTS WERE BEING BUILT USING MAINLY DIRECT-ACID
CATALYZED ESTERIFICATION, DIRECT-ACID CATALYZED ESTERIFICATION
WITH METHANOL, OR CONVERSION OF OIL TO FATTY ACIDS FOLLOWED BY
ACID CATALYZATION TO ALKYL ESTERS.
• THE EARLY TECHNOLOGIES WERE BASED MOSTLY ON CORN AND
SOYBEAN AS THE FEEDSTOCKS.
• IN BRAZIL, THE ETHANOL INDUSTRY HAS BEEN PROMINENT FOR YEARS
AND IS GAINING POPULARITY EACH YEAR WITH SUGAR CANE JUICE AND
MOLASSES, AND RECENTLY BAGASSE, AS THE FEEDSTOCK.

4. RECENT HISTORY OF THE BIOCHEMICAL INDUSTRY
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• CONGRESS SET UP THE PRESSURE TO INCREASE RENEWABLE FUELS
PRODUCTION WITH THE ENERGY INDEPENDENCE AND SECURITY ACT OF
2007 (RFS 2007), WHICH PLACED EMPHASIS ON THE PRODUCTION OF
RENEWABLE FUELS FROM NON-FOOD FEEDSTOCKS, LIGNOCELLUOSE
(CELLULOSIC) FEEDSTOCKS.
• ENZYMATIC HYDROLYSIS IS NOW ONE OF THE TECHNOLOGIES BEING
USED IN AN ATTEMPT TO PRODUCE RFS 2007 LEVELS (REVISED IN 2008 TO
2012 AND DOWN AGAIN RECENTLY).
• THE CURRENT CELLULOSIC FEEDSTOCKS INCLUDE WOOD, MUNICIPAL
SOLID WASTE, CORN STOVER, AND SUGAR CANE BAGASSE AMONG
OTHERS.
• THE CURRENT PRODUCTION TECHNOLOGIES ARE BROKEN OUT INTO
BIOLOGICAL AND NON-BIOLOGICAL (THERMAL CONVERSION) PROCESSES
WITH MANY PLAYERS ATTEMPTING TO MAKE COMMERCIAL PRODUCTION
BREAKTHROUGHS.

5. RECENT HISTORY OF BIOCHEMICAL INDUSTRY
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• AFTER TWO YEARS OF DELAY, THE EPA EARLIER THIS YEAR ISSUED NEW
PRODUCTION STANDARDS FOR THE VARIOUS BIOFUEL CATEGORIES. THE
GOALS ARE MUCH LESS THAN THE ORIGINAL 2007 GOALS.
• THE CATEGORIES INCLUDE RFSI BIOFUEL MANDATED BY EPACT OF 2005
WITH A CAP ON CORN STARCH-DERIVED ETHANOL AND “ADVANCED
BIOFUELS”. THE ADVANCED BIOFUEL CATEGORY IS FURTHER DIVIDED
INTO TOTAL NON-CORN STARCH, CELLULOSIC, BIOMASS-BASED DIESEL,
AND “OTHER”. VERY CONFUSING!
• THE CATEGORY CALLED CELLULOSIC HAS BEEN THE MOST DIFFICULT
PRODUCTION LEVEL TO ACHIEVE WITH SOME TOTAL FAILURES AND VERY
LITTLE PROGRESS IN THIS AREA.
• AT PRESENT, ETHANOL AND GASOLINE MIXTURES ARE LIMITED TO 10%
ETHANOL AND THE MOVE TO INCREASE ETHANOL TO 15% HAS BEEN
DELAYED.

6. RECENT HISTORY OF BIOCHEMICAL INDUSTRY
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• IN SPITE OF DELAYS AND TECHNOLOGY SETBACKS, U.S ETHANOL
PRODUCTION HAS INCREASED FROM ABOUT 2.8 MILLION GALLONS IN
2003 TO AN ESTIMATED 14,300 MILLION GALLONS IN 2014. BIODIESEL
PRODUCTION IS ESTIMATED AT ABOUT 1,270 MILLION GALLONS IN 2014.
HOWEVER, THE ETHANOL PRODUCTION IS STILL A RELATIVELY SMALL
FRACTION OF THE ESTIMATED 370 MILLION GALLONS OF GASOLINE
CONSUMPTION PER DAY.
• IN ADDITION TO REPLACING GASOLINE, DIESEL AND FUEL OIL AND JET
FUEL ARE FUTURE PROBLEMS THAT MUST BE ADDRESSED BY THE
SIMILIAR TECHNOLOGIES THAT PRODUCE ETHANOL.
• THE NEXT STEP IS EXTREMELY CRITICAL BECAUSE THE REALIZATION
THAT THE SHALE OIL AGE IS COMING TO AN END IS APPROACHING
WITH THE RESUMPTION OF DECLINING U.S. TOTAL OIL PRODUCTION
CLOSE BEHIND.

7. DEPARTMENT OF ENERGY’S PLANS FOR BIOFUELS
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• THE U.S DEPARTMENT OF ENERGY (DOE) AIMS TO DISPLACE 30% OF THE
2004 GASOLINE CONSUMPTION WITH BIOFUELS (60 BILLION GAL/YR) BY
2030. OF THOSE 60 BILLION GALLONS, 15 BILLION ARE EXPECTED TO
COME FROM GRAINS (MEANING PROBABLY CORN AND SOYBEAN), AND
THE REMAINING 45 BILLION FROM LIGNOCELLULOSIC RESOURCES. THIS
MEANS THAT OF THE 700 MILLION DRY MATTER (DM) TONS OF BIOMASS
REQUIRED ANNUALLY, 530 MILLION (DM) TONS MUST COME FROM A
DIVERSE VARIETY OF HERBACEOUS AND WOODY LIGNOCELLULOSIC
(CELLULOSIC) BIOMASS RESOURCES.
• IN ORDER TO ACCOMPLISH THIS STATED GOAL, A WELL ORGANIZED
BIOMASS LOGISTICS SYSTEM MUST BE DEVELOPED. THE DOE HAS
ACKNOWLEDGED THE NEED FOR A COMMODITY-SCALE, UNIFORM-
FORMAT SUPPLY SYSTEM AS THE MOST IMPORTANT PROBLEM THAT MUST
BE SOLVED IN ORDER TO SIGNIFICANTLY INCREASE BIOFUELS
PRODUCTION.

8. BIOMASS LOGISTICS
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• TODAY’S PETROCHEMICAL INDUSTRY IS GENERALLY DIVIDED INTO THREE
SECTIONS: UPSTREAM, MIDSTREAM, AND DOWNSTREAM. UPSTREAM IS
EXPLORATION AND PRODUCTION OF FEEDSTOCK, MIDSTREAM IS
DISTRIBUTION OF FEEDSTOCKS AND FINAL PRODUCTS, AND
DOWNSTREAM IS PRODUCTION OF FINAL PRODUCTS. TRANSPORTATION
BY RAIL, SHIP, AND TRUCK OVERLAPS ALL THREE OF THESE AREAS.
• THE SAME SCENARIO WILL BECOME NECESSARY IN THE FUTURE
BIOCHEMICAL INDUSTRY. AN INFRASTRUCTURE OF USEABLE BULK
SOLIDS FROM LIGNOCELLULOSIC BIOMASS IS THE EVENTUAL ANSWER TO
THE BIOMASSS LOGISTICS PROBLEM.
• OBVIOUSLY, THE MIDSTREAM ARENA OF THE FUTURE BIOCHEMICAL
INDUSTRY IS SIGNIFICANT AND WILL BE INVOLVED IN ALL THE PROBLEMS
ASSOCIATED WITH BIOMASS LOGISTICS..

9. BIOCHEMICAL INDUSTRY MIDSTREAM
OPPORTUNITIES
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• ONE OF THE BIGGEST PROBLEMS WITH BIOMASS FEEDSTOCKS IS
TRANSPORTATION COST. IN ITS NATURAL FORM, ALL
LIGNOCELLULOSIC BIOMASS HAS LOW DENSITY, WHICH MEANS THE
VOLUME PER UNIT WEIGHT IS HIGH; THEREFORE, TO DECREASE
TRANSPORTATION COST TO PRODUCTION FACILITIES, DENSITY MUST
BE INCREASED.
• PRESENTLY, PELLETIZATION APPEARS TO BE THE PRIMARY METHOD
OF INCREASING THE DENSITY OF BIOMASS. THIS IS THE REASON FOR
THE GROWING NUMBER OF PELLET MILLS IN THE SOUTHEAST WHICH
ARE PRODUCING WOOD PELLETS FOR EXPORT OVERSEAS.
• IN THE FUTURE, DENSIFICATION WILL BECOME THE MAIN FUNCTION OF
PRE-PROCESSING DEPOTS THAT RECEIVE LOCAL BIOMASS AND
PRODUCE PELLETS FOR TRANSPORTATION TO EITHER SHIPPING
TERMINALS OR PRODUCTION FACILITIES.

10. BIOCHEMICAL INDUSTRY MIDSTREAM
OPPORTUNITIES
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• ANOTHER PROBLEM WITH LIGNOCELLULOSIC BIOMASS IS THE LIGNIN
COMPONENT, WHICH FOR NOW IS MAINLY USED AS AN INEFFICIENT FUEL
FOR POWER PRODUCTION. IN THE FUTURE, LIGNIN WILL ALSO BECOME
FEEDSTOCK FOR TRANSPORTATION FUEL PRODUCTION.
• LIGNIN MUST BE REMOVED OR MODIFIED IN A PRETREATMENT PROCESS
PRIOR TO FERMENTATION TO CRUDE ETHANOL. THE PRETREATMENT
PROCESS THAT IS GETTING THE MOST RESEARCH NOW IS STEAM
EXPLOSION. TORREFACTION APPEARS TO BE THE PREFERRED
PRETREATMENT PROCESS PRIOR TO THE PRODUCTION OF PELLETS FOR
POWER PRODUCTION.
• PREPROCESSING DEPOTS COULD ALSO BE INVOLVED IN STEAM
EXPLOSION PRETREATMENT OF BIOMASS PRIOR TO PELLETIZATION FOR
PELLETS DESTINED FOR TRANSPORTATION FUEL PRODUCTION OR
TORREFACTION OF PELLETS DESTINED FOR POWER PRODUCTION.

11. THE U.S BIOFUELS INDUSTRY CHANGED QUICKLY
FROM FAST FORWARD TO SLOW SPEED
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• SINCE THE EARLY FIRST DECADE OF THIS CENTURY, CORN ETHANOL HAS
BEEN THE KING OF THE BIOFUELS MOVEMENT. BY 2007, IT WAS CLEAR
THAT ETHANOL PRODUCTION FROM CORN WAS NOT GOING TO SATISFY
FUTURE DEMAND. PLUS THERE WAS A GROWING BACKLASH ON THE
AFFECT ETHANOL PRODUCTION WAS HAVING ON CORN PRICES. THE
RESULT WAS THE RFG 2007 WHICH PLACED LIMITS ON THE PRODUCTION
OF ETHANOL FROM CORN FEEDSTOCK.
• AT THAT TIME THE HOPE WAS THAT CELLULOSIC ETHANOL PRODUCTION
TECHNOLOGY AND OTHER BIOFUELS PRODUCTION TECHNOLGY WOULD
BE DEVELOPED THAT WOULD SIGNIFICANTLY INCREASE TOTAL BIOFUELS
PRODUCTION IN THE UNITED STATES. ALSO, THE SHALE OIL CRAZE HAD
NOT YET BEGUN THAT WOULD TEMPORARILY HALT THE DECREASING
DOMESTIC CRUDE OIL PRODUCTION THAT HAD BEGUN EARLIER IN THE
DECADE.

12. THE U.S BIOFUELS INDUSTRY CHANGED
QUICKLY FROM FAST FORWARD TO SLOW SPEED
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• IN 2007, ANOTHER PROBLEM SLOWED DOWN THE BIOFUELS
MOVEMENT. THE ECONOMY GROUND TO A HALT AND CATASTROPHE
WAS AVERTED BY A FEDERAL RESERVE THAT STARTED CREATING
MONEY AT AN INCREASING RATE. THIS DIDN’T HELP THE BIOFUELS
INDUSTRY BUT STARTED THE SHALE OIL-GAS CRAZE. U.S CRUDE OIL
PRODUCTION BEGAN ITS RAPID RISE THAT IS JUST PEAKING RECENTLY
AFTER THE COLLAPSE OF THE CRUDE OIL PRICE.
• THE RESULT OF THE FED’S ACTION CAUSED OVERPRODUCTION OF
DOMESTIC CRUDE OIL AND CREATED FALSE HOPE OF A NEW
PETROCHEMICAL AGE IN THE UNITED STATES. THE TRANSITION INTO
THE FUTURE BIOCHEMICAL AGE WAS AND IS STILL DELAYED WITH
PROBABLE FUTURE DIRE CONSEQUENCES.

13. THE BIOFUELS MOVEMENT WILL FAST FORWARD
AGAIN
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• THE LAST SEVEN YEARS HAS PLACED THE FUTURE BIOCHEMICAL
INDUSTRY ON HOLD AND CAUSED CHAOS WITH THE REMINANTS OF
THE INITIAL BIOFUELS INDUSTRY.
• THE RECENT DROP IN THE PRICE OF CRUDE OIL WILL DRIVE OUT THE
MARGINAL PLAYERS IN THE SHALE OIL-GAS INDUSTRY AND
EVENTUALLY, POSSIBLY IN 2016, CAUSE THE CRUDE OIL PRICE TO
START RISING BACK TO THE $100 A BARREL LEVEL AGAIN. THE
RETIREMENT GIFT FOR THE PETROCHEMICAL INDUSTRY WILL
EVENTUALLY DISAPPEAR, AND THE NEW BIOCHEMICAL INDUSTRY WILL
BEGIN A NEW STEADY RISE.
• DURING THIS STEADY RISE, PLAYERS IN THIS MOVEMENT WILL BE
SEARCHING FOR BOTH ALTERNATIVES TO CORN ETHANOL AND
METHODS TO SUPPLY FEEDSTOCKS TO INCREASING BIOFUELS
DEMAND.

14. THE SOLUTION TO BIOMASS LOGISTICS WILL BE THE
DRIVING FORCE OF THE FUTURE BIOPCHEMICAL
INDUSTRY
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• GETTING FEEDSTOCKS TO BIOFUELS PRODUCTION PLANTS AND
POWER PRODUCTION FACILITIES AND GETTING BIOFUEL PRODUCTION
TO CONSUMERS WILL BE THE NUMBER ONE PROBLEM TO OVERCOME
IF THE BIOCHEMICAL INDUSTRY IS TO SIGNIFICANTLY EXPAND.
• COMPANIES IN THIS BUSINESS ARE GOING TO ENCOUNTER
SIGNIFICANT TECHNICAL PROBLEMS THAT MUST BE OVERCOME IN
ORDER TO BECOME A PLAYER IN THE NEW BIOCHEMICAL INDUSTRY.