by Jim Lane

What in the world has gone right with Gevo?

For years now, Gevo (Nasdaq:GEVO) has remained true to a vision of low-carbon, advanced renewable fuels, when so many others pivoted away to the world of ABF — Anything But Fuels. Some tried chemicals, cannabis, algae, natural gas, nutraceuticals, vegan foods — lately, protein has been all the rage. Gevo was one of the few true believers and paid the price of stock price punishment and near-extinction, for years.

While they weathered a debilitating patent battle with DuPont, until it settled and DuPont imploded. And the collapse of oil prices when the frackers arrived, until many of the frackers imploded. Not to mention the joys of investor impatience as Gevo battled to stabilize their technology at the first commercial deployment in Luverne. The years when no investor believed that carbon prices were here to stay and that low-carbon technology represented a quantum leap in shareholder value creation. The years when the RFS and the LCFS and the Paris climate agreement were unknown to the many and disdained by the few. The years when everything was going electric ‘next year’ and then ‘next year’ and ‘next year’.

Gevo persevered with their technology, and a focus on renewable hydrocarbons, as their stock on a ride through the Valley of Dilution. The company’s many fans stubbornly kept the firm in the upper echelons of the 50 Hottest Companies in the Advanced Bioeconomy. The management kept costs trimmed, laid out a plan for deployment, and waited for the storms to pass. And as was said in Casablanca, “waited and waited and waited.”

The stock dipped to just 49 cents a share last summer, after a series of dilutions, as it assembled a series of impressive offtake agreements, ultimately reaching $1.5B late last summer, and the company raised $50 million in a new share offering. A Praj partnership expanded, and a Koch partnership appeared. The company’s shelf of Whitebox debt was repaid.

And, finally, the stock began to rise as the prospects that Gevo would finally deploy at the scale necessary for thriving, not just surviving, seemed at hand. Gevo announced its Net Zero Project.

Just as the world took notice that all these Net Zero promises coming from companies of late could not be satisfied by a mountain of wind and solar, because those technologies have very small carbon footprints but they are not zero. For every wind and solar project, you need to offset with something carbon negative, and that’s something found in biology. Not to mention, renewable fuel projects can be low carbon, too, even when they are not carbon negative, and the investment returns can look pretty darn good when you sell the resulting fuels into low-carbon markets.

And so, Gevo began to rise, and rise and rise and rise. Back to a dollar a share by November. Four dollars a share in December, and $13.24 a share as of January. A market cap soaring to $2B this past week.

I had a conversation earlier this month with a large investment fund, they were looking for value investments in the renewables space — given how high many of the players had gone. He hadn’t heard of GEVO, which I recommended to his attention. I sure hope he bought it, in volume, the price has doubled since that call.

All of this growth has allowed the company to raise $350 million in a share offering this past week — 43.7 million shares at $8 per. Gevo’s back to being a Wall Street darling after The Wilderness Years, as the 1930s were described with respect to Winston Churchill, who sat in the shadows as unjustly and as long.

Is Gevo back? No, Gevo never left. What’s happened? Those things that Gevo long predicted — a future where renewable fuels would do good, and do well — have come to pass. If they are crowing triumphantly for a few days at their reversal of fortune, we’ll not say a word in criticism, for it has been a long stretch of sailing in the Doldrums, but tomorrow it is back to work.

Net Zero Projects

As Gevo outlined recently, it plans to build Net Zero Projects to produce energy-dense liquid hydrocarbons using renewable energy and Gevo’s proprietary technology. Gevo is currently developing its Net-Zero 1 Project at Lake Preston, South Dakota. Gevo management said they expect Net-Zero 1 would have the capability to produce approximately 45 million gallons per year of liquid hydrocarbons (jet fuel and renewable gasoline) that when burned should have a “net-zero” greenhouse gas footprint as measured across the whole of the lifecycle based on Argonne National Laboratory’s GREET model.

In addition, Net-Zero 1 is expected to produce at least 350,000,000 lbs/yr of high protein animal feed. To reduce and eliminate the fossil resources used in the plant, it is expected to have an anaerobic digestion wastewater treatment plant that is capable of generating enough biogas to run the plant and supply a combined heat and power unit, capable of meeting approximately 30% of the plant’s electricity needs. The remaining 70% of electricity to run the plant is expected to come from wind power. Net-Zero 1 may also obtain renewable natural gas using manure from dairy or beef cows.

Here’s the latest Gevo presentation explaining the what, how, who and when of their deployments and partnerships.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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by Debra Fiakas, CFA

The aviation industry contributes about $2.7 trillion to the world’s gross domestic product.  It may seem like a big number, but that is only 3.6% of the world’s wealth.  Aviation may be a minor player in terms of creating wealth, it is a big culprit in climate change.  Flying around the world accounts for as much as 9% of humankind’s climate change impact.  Indeed, compared to other modes of transportation, flight has the greatest climate impact.

The negative impact of carbon emitted by aircraft is made even worse by the fact that the emissions point is mostly at cruising altitudes high in the atmosphere.  High-altitude emissions are considered to be more harmful because the chemical reactions there create a greater net warming effect.  The Intergovernmental Panel on Climate Change (IPCC) estimates that the climate impact of aircraft is as much as four times greater than the effect of the carbon emissions alone.

Several companies have attempted more environmentally friendly jet fuel.  Honeywell (HON:  NYSE) acquired Universal Oil Products (UOP) in 2005, and subsequently announcing in 2008, UOPs ‘ecorefining’ process for converting vegetable oils into diesel and jet fuel replacements.  Since then Honeywell-UOP has announced several high profile customers for its jet fuel, including the U.S. Navy’s Green Hornet, United Airlines, Quantas Airlines and among others.  Still Honeywell concedes its jet fuel will reduce greenhouse gas emissions by only 65% to 85% based on their own internal analysis.

Neste Oyj (NESTE:  HE) has developed its own version of sustainable aviation fuel it calls MY Renewable Jet Fuel.  Like Honeywell-UOP’s product, Neste’s jet fuel is compatible with existing jet engine technology and is considered a fuel that can be ‘dropped in’ to existing distribution and handling infrastructure.  Neste uses a variety of feedstock for its bio-jet fuel, including used cooking oil, waste fish fat, animal fats and corn oil.  The end result is a cleaner burning fuel that emits as much as 80% less greenhouse gas emissions than jet fuel made with petroleum.

Even small-fry Gevo, Inc. (GEVO:  Nasdaq) is getting into the sustainable jet fuel business.  In August 2019, Gevo announced an agreement to supply France’s Air TOTAL International SA with a jet fuel based on Gevo’s proprietary renewable isobutanol.  Gevo fractionates grain and ferments the residual carbohydrate portion to produce bio-isobutanol that is then processed further into jet fuel.  Given Air TOTAL’s position as a leading aviation fuel distributor, Gevo may be very well positioned beyond its historic share of the renewable fuel market.

Gevo has not yet achieved profitability so even its brilliant distribution relationship with Air TOTAL might not be enough to get risk adverse investors to take a position.  The more mature Neste is trading at 24.2 times trailing earnings, which may seem a bit pricey until the stock’s 2.5% current dividend yield is taken into consideration.  At 21.2 times its trailing earnings Honeywell’s stock is a bit cheaper.  Its 2.0% current dividend yield is not hard to swallow either.

For those investors who cannot decide on the basis of valuation alone, a sustainability rating might help.  Sustainanalytics puts Honeywell in the 59^th percentile in terms of environmental sustainability.  The rating was determined against a peer group of 29 companies.  But the same rating scheme puts Neste in the 79^th percentile among its peer group of 37 companies.  Given its renewable fuel and chemicals focus, Gevo would probably like to be considered among the most environmentally friendly companies.  However, Sustainanalytics gives it no rating at all.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 11/19/19 as “Flying High on Organics.”  

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Challenges and Opportunities in Biofuels

By Steve Hartig, Former VP of Technology Development at ICM

The North American biofuels market can be split into three main segments all of which have major dynamics.  What I would like to do is give a high-level overview of what I see as some of both the challenges and opportunities across these.

• Ethanol which is a produced from corn and sorghum in about 200 plants mainly across the Midwest and blended at about 10% with gas.  Majors such as POET, Green Plains, Flint Hills, Valero, ADM and Cargill do a bit more than half of the 16 billion gallons production with the rest done mainly by farmer co-op plants.  An average plant size is about 80 mln gpy.  About 10% of gasoline is ethanol.   Cellulosic ethanol is the newer area which has had many challenges but companies such as POET DSM are producing some volumes from crop residues and Lanzatech from gas streams.
• Biomass based diesel produced mainly from vegetable oils and waste fat in a large number of plants, typically rather small, across the US with the market leader being REG.  Total volume sold in the US, per the EPA was 2.3 bin gallons, in 2018 or about 4-5% of the total diesel supply.  Actual capacity is much larger at 4.1 bln gallons.
• Bio jet fuel which is still embryonic but an interesting are with about 25 bln gallons of potential.  What is exciting is that this area is likely to grow in volume over time and alternative approaches such as electrification are difficult for aircraft given the weight of batteries so this is a long term and growing market for biofuels

Challenges for the corn ethanol and biodiesel producers are very much around profitability and the regulatory environment while the embryonic cellulosic and jet fuel areas still has many technical challenges to prove viability.

Corn Ethanol

There is a huge challenge today due to oversupply versus demand driving prices down.  There is much arguing as to the cause of this but it seems to be a combination of low or no growth in gasoline demand, significantly added ethanol capacity, a slow uptake of higher-level ethanol blends and the EPA Small Refinery Exemptions.  This is aggravated by the dynamics in corn pricing this year due to weather.

Unless E15 volume increases significantly, things are only going to get worse as essentially all forecasts show gasoline volume decreasing over the coming five to ten years driven by increased fuel economy in the short run and vehicle electrification in the long term.

Forecasting what will happen is difficult as ethanol is very different than most commodity chemicals due to the relatively small plant size, driven by corn supply economics, and the large number of companies active in it.  In most commodity chemicals markets, a handful of companies control the market and new entrants are difficult due to the lack of economies of scale.  However, continued consolidation and the closing of smaller, less efficient and poorly located plants will continue.

The starting point for surviving any downturn and long term sustainable profit will be having a plant with a low cost position driven by a combination of scale, plant technology, location, operational excellence and strong maintenance.  The difference between leaders and laggards here can be over $.10 per gallon, which is huge.

However, the likely winners will be those that also embrace some form of specialization next to the commodity markets for ethanol, distillers grains and corn oil.

A number of options exist and this is also an exciting area of focus for many companies.

Main areas include:

• Moving towards higher value animal feed by fractionating the distillers grains into more focused animal feeds.   Options for this exist from many suppliers including ICM and Fluid Quip Process Technologies.  Both companies take an approach of splitting the DDGS into two streams, one a high protein feed product targeted at poultry, swine and aquaculture and the remainder being either a DDGS at the low end of the protein specification or a wet fiber and syrup product targeted at cattle.   The value comes from the fact that the higher protein product more competes with soy rather than corn and  can capture a higher price.  Both companies have multiple installations in place and claim paybacks in the 2-4 year range.  Considerations for installing these technologies would include plant scale and geographic location with proximity to cattle allowing the use of wet feed an advantage.

• Towards the future, options will include using stillage as a fermentation broth such as both White Dog Labs and KnipBio are developing.  Both companies are focused on using the relatively inexpensive stillage to produce single cell proteins aimed at aquaculture.  These products can potentially compete with fish meal which a$1500/ton and is also limited in growth potential. White Dog Labs has announced an initial installation in Nebraska while KnipBio has announced a cooperation with ICM towards commercializing their technology.

• Focusing on California and the increasing low carbon fuel markets.  Today, with the value of a carbon credit close to $200, a plant with a CI of 75 can get a premium of over $.25 per gallon.  There are only a few plants in the 60’s but many in the mid 70’s.  Typical approaches include alternative power sources such as land fill gas or anaerobic digestion to biomethane combined with cogeneration of electricity and steam.  Other options include solar or biomass boilers.  A newer approach is the use of membrane technology to reduce the energy used in the molecular sieves or alternatively modifications to the evaporators.  The keys when considering this approach would include a good starting point with plant efficiency and the cost of west coast shipment.

• Using the ethanol plant as a platform to produce other products.  Edeniq has a number of plants producing cellulosic ethanol from corn fiber while both ICM and D3Max have their first, larger scale, plants under construction.   Cellulosic ethanol from corn fiber is much lower cost to produce than cellulosic ethanol from crop residues or energy crops.  Edeniq has no capex and claims a cellulosic ethanol amount of 3-4% while both D3Max and ICM indicate levels more in the range of 7-8% but have significant capital.   However, the payback can be short given a combination of a D3 RIN and potential LCFS credit.  Another alternative in the future may be butanol with Gevo (NASD:GEVO) and Butamax both having demonstration facilities up and running.

I believe these options will be a game changer for the industry but companies must make the right choice based on starting position, plant location, scale and technology, risk tolerance, operational capabilities and capital availability.  A key item for many of these is that they will typically create a more complex plant and business environment which can require a higher level of staffing, capability and management expertise.

I think the future can be bright for ethanol but I foresee a future that likely has fewer, larger and more sophisticated plants than are in place today.

Biomass based diesel

Biomass based diesel (BBD) has very different dynamics with about 100 plants in the US, some of which are very small, less than 10 mln gallons per year.  Many of the plants are driven by location by feedstocks, either soy or corn oil or waste fats and greases.  Demand for BBD is very much driven by the RFS as it typically costs more than petroleum-based diesel but can fulfill either the D4 BBD RIN or the Advanced D5 RIN.  This is particularly the case with the biodiesel tax credit lapsing in 2017 and, at least so far, not being renewed.

The big change going on now is the shift towards renewable diesel, presently about 15% of total BBD, which is more costly to produce but is essentially a drop in for diesel and can have lower carbon numbers, depending on feedstocks.  Due to the lower CI it is being heavily targeted at California for sale under the Low Carbon Fuel Standard.  In addition, it can capture a greater RIN value.

The plants scheduled to come on line over the next few years is mind boggling given today’s position.  Expansions planned or proposed by Diamond Green (a joint venture between Darling Ingredients (DAR:  NYSE) and its joint venture partner Valero Energy (VLO:  NYSE)), NEXT Renewables, RYZE, Philips 66 (NYSE:PSX)/Renewable Energy Group (NASD:REGI) and others could add up to 2 bln gallons of new Renewable Diesel volume focused on West Coast markets and almost doubling the total volume of BBD volume.  This is in addition to global expansions in biodiesel by companies such as Neste and companies coprocessing it in oil refineries.

Selected US Renewable Diesel Projects

Note:  Project information from company websites and public announcements

This will have significant impacts on the market:

• The total diesel fuel market is not expected to grow much, per the EIA, so this fuel will need to displace petroleum-based diesel which may negatively impact pricing.   There also is more capacity than there are RINs available which will have a downward impact on that.  On the plus side, is the LCFS which is spreading beyond California and will bring a carbon credit.  REG indicated in their 10k that the 2018 value was between $.40-.80 per gallon.

• Regulation unclarity will continue between the RFS volume obligations, tax credits, trade policy, and the Small Refinery Exemptions which appear to have more impact on BBD than ethanol.  Right now, several smaller BBD producers are not operating due to lack of profitability.

• How about feedstocks?  Right now BBD uses a combination of soy oil, corn oil and waste fats and greases.  BBD today uses about a third of the US soy oil supply so this will clearly impact pricing and availability certainly in the shorter run.  What will aggravate this is that all the feed streams are byproducts of other processes so cannot be increased on their own along with all the dynamics hitting soy on the trade side.  The EPA in their draft 2020 RVO estimates that from 2019 to 2020 feedstock availability would be enough to produce about 144 men gallons of advanced biodiesel and renewable diesel.

I think this business will continue to have challenges in the future and it is also likely not all the plants proposed will be built but the trend towards renewable diesel will continue.

Bio-jet Fuel

Bio jet fuels have a completely different environment that ethanol and biodiesel both as they are presently not mandated by the government and also as they are in an earlier stage of technical development.

There are three broad technology areas that cover much of the effort.  Most technologies would produce a fuel that could be blended at some level with standard jet fuel.

1. Renewable diesel/oil to jet—This process is an additive process to biobased diesel taking the diesel and cracking it, isomerizing it and then purifying the end product.
2. Alcohol to jet—Basically taking an alcohol, either ethanol or butanol, and then dehydrating it to remove the extra oxygen and then catalytically or chemically converting this to jet fuel.  The advantage of this is the ethanol routes are well developed so only the final process step is new.  Potentially this could consume some of the excess ethanol in the market but that would likely be with a penalty to CI compared to routes such as LanzaTechs using cellulosic feed streams.  Players here include Gevo, LanzaTech and Byogy.
3. Gas to liquids—the typical routes here are gasifying a biomass or MSW stream into syngas and then using technology such as Fischer Tropsch to convert it to jet fuel.  Pyrolysis is another alternative.  This is earlier stage technology but has the potential for very low carbon due to feedstocks and will have wide feedstock availability.  Players here include Red Rock Biofuels and Fulcrum.

Selected US Jet Fuel Projects

The diesel fuel route is clearly the one with the fewest technical hurdles but will run into the same feedstock issues that biodiesel has if it moves to any significant volumes.  Alcohol to jet would be the next most straightforward while it seems like the gas the liquids route has the best carbon footprint and also feedstock potential.  However, it is unclear what the cost will be and what technical hurdles they will hit.

The next five years will see major learning taking place as commercial plants for many of these technologies are underway.

What makes bio jet particularly interesting and challenging is that it really is a global market so any regulations put in place by a single country could be very challenging to implement and enforce.  Conversely, given the global trade environment it seems unlikely that a global pact will appear anytime soon.

Without a mandate, it appears the airlines are broadly experimenting with biofuels but not making any major commitments.  My cynical view would be that they are doing everything they can to show progress while putting minimal money on the table.  Given the impact of fuel prices on airline profitability and the fact today that most or all biojet fuels will be more expensive than fossil-based fuels I would guess progress will move slowly.

Looking at the RFS, the pathways exist to capture a D4 RIN for biodiesel type approaches, a D5 RIN for Renewable diesel approaches and a D7 when using cellulosic feedstocks.  It does not appear that there is an existing pathway for a corn-based ethanol to jet fuel.

The question is what the RFS will do if biojet fuel grows significantly in volume as they presently define all their mandates based on surface transportation.  If there were suddenly an extra billion gallons of RIN’s available without the obligated parties needing to purchase them this would crash the value of the RINs.  California is working on routes within the LCFS but this presumably would be restricted to California.  Overall, this could provide benefits would not want to bet a business on the availability of RINs.

Long term, I think bio jet fuel will be a large and important market but it will take some form of carbon charge or other mandate.  Until that it will likely stay small.

I think today is an exciting time in biofuels, as always, with lots of dynamics and opportunities for companies to succeed but also fail.

Author Notes

Steve Hartig is an experienced executive with almost 40 years of experience across DuPont, DSM and ICM in leadership roles.  He is presently acting as an advisor/consultant to companies in the biofuels and other segments.

This post first appeared on Biofuels Digest. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

The post North American Outlook on Biofuels Challenges and Opportunities appeared first on Alternative Energy Stocks.

by Jim Lane

In hand we now have the latest earnings reports from what you might call the 8 Pathfinders – eight publicly traded stocks whose second quarter results offer insights into the health and performance of the advanced bioeconomy as 2019 heads towards its closing crescendos.

Our 8 Pathfinders – In the world of global renewable diesel at scale, Neste (Neste.HE); pure-play enzymes, Novozymes (NVMB); In pharma and synbio, Codexis (CDXS); as a hybrid play in advanced fuels, Aemetis (AMTX); in advanced marine and jet fuels, Gevo (GEVO); for biodiesel and hydrocarbons, Renewable Energy Group (REGI); in advanced began foods, Beyond Meat (BYND), and for a diversified ethanol and nutrition play, Green Plains (GPRE).

At Neste

As CEO Peter Vanacker, noted: “Neste’s solid financial performance continued. We posted a comparable operating profit of EUR 367 million in the second quarter, compared to EUR 277 million in the corresponding period last year. Renewable Products’ quarterly sales and production volumes were the highest ever. The renewable diesel market continued to be favorable, but feedstock prices increased as communicated earlier. Our sales volumes were 745,000 tons, and this new quarterly record was also supported by the excellent operational performance at the refineries. The higher sales volume had a positive impact of EUR 79 million on the comparable operating profit year-on-year. The comparable sales margin averaged at USD 568/ton, which was 12% higher compared to the corresponding period last year, leading to a positive impact of EUR 32 million on the operating profit. During the second quarter 65% of volumes were sold to the European markets and 35% to North America. During the quarter our renewable diesel production facilities operated at a very high average utilization rate of 105%, based on the nominal capacity of 2.9 Mton/a. The share of waste and residues was 77% of the total renewable raw material inputs.”

Outlook: Developments in the global economy have been reflected in the renewable fuel, feedstock and oil markets; and volatility in these markets is anticipated to continue. Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks. Global oil product demand growth is expected to continue at a lower rate than in 2018, while global refining capacity additions are expected to grow driven by large projects in Asia and the Middle East. Based on our current estimates and a hedging rate of approx. 80%, Neste’s effective EUR/USD rate is expected to be within a range 1.14-1.16 in the third quarter of 2019.

At Novozymes

Novozymes “confirmed on all fronts following the adjustments communicated on June 6,” with First-half year-on-year (y/y) organic sales growth of -3%: Household Care -2%, Food & Beverages -2%, Bioenergy -4%, Agriculture & Feed -6%, Technical & Pharma +2%. EBIT margin 30.0%. Net profit up 1 percentage point (y/y).

CEO Peder Holk Nielsen said, ““Our half-year sales performance is not satisfactory, but as expected, following the revised full-year outlook on June 6. Softness in US agriculture and some emerging markets, including the Middle East, has created headwinds. We’re confident sales growth will accelerate in the second half of the year as the Freshness platform, BioAg and Bioenergy all step up, and the Middle East comparison eases.”

At Codexis

As CEO John Nicols noted: “Product revenue increased a very solid 68% over the prior-year period with strong contributions from Merck, Urovant Sciences and four additional global Top 25 pharmaceutical customers. R&D revenue was spread across an increasingly wider base of customers including Nestlé Health Science, four global Top 25 pharmaceutical customers, and two new customers in two new verticals. We also secured a dedicated R&D project team working with another new global customer targeting an entirely different molecular diagnostics application class for Codexis. Additionally, we are delighted with Casdin Capital’s $50 million investment in Codexis, as announced in June. We appreciate their confidence and their recognition of the versatility of our CodeEvolver platform technology.

Q2 revenues were $12.3 million, compared with $13.5 million for the second quarter of 2018. Product revenue was $6.2 million, up 68% from $3.7 million for the second quarter of 2018, with the increase reflecting customer demand for enzymes for both generic and branded products.The net loss for the second quarter of 2019 was $6.5 million, or $0.12 per share, compared with a net loss for the second quarter of 2018 of $3.7 million, or $0.07 per share.

Codexis is affirmed its financial guidance for 2019 for revenues are expected to be $69-$72 million; and product revenues are expected to be $26-$29 million.

At Aemetis

Aemetis’ reported in Q2 $11.1 million of revenue from India operations during the second quarter of 2019, representing a 106% increase from the prior year quarter.  Aemetis said it continues to advance its ultra-low carbon California cellulosic ethanol biorefinery, which is expected, upon completion, to add approximately $80 million of high margin revenues. Utilizing thousands of tons of waste wood from California’s Central Valley, the Aemetis cellulosic ethanol biorefinery is expected to produce the state’s lowest carbon ethanol fuel and reduce greenhouse gas emissions in the process.

At Gevo

Gevo reported $5.1M in quarterly revenue, a $4.7M EBITDA loss and ended the quarter with cash and cash equivalents of $29.2 million. The company entered into an agreement with Air TOTAL for Gevo to supply its sustainable aviation fuel to Air TOTAL for use and distribution in France and other parts of Europe.  With the finalization of this new supply contract, Gevo will initially supply Air TOTAL SAF from the South Hampton facility in Silsbee, Texas and eventually from the expansion of Gevo’s advanced biofuels production facility in Luverne, Minnesota plant which is expected to be constructed in the next several years. Gevo also reported successful completion of the Port of Seattle renewables trial, and a trial with Virgin Australia.

CEO Pat Gruber noted “the pieces necessary to drive Gevo’s business are falling into place.  We believe we are making real progress on refinancing our secured debt, securing offtake agreements for our advanced renewable biofuel products and advancing manure biogas and wind projects to decarbonize our Luverne Facility.  Evidence of our progress include the supply agreement with Air TOTAL.  In addition, we are working on securing a loan for up to $45 million that could be used, in part, to pay off our current secured lender.

At REG

REG reported 197 million gallons sold, 127 million gallons produced, revenues of $560.6 million and adjusted EBITDA of ($42.3 million).

REG’s average selling price per gallon was $2.70, a decrease of 13.2% resulting primarily from lower biodiesel prices, which were down $0.55 per gallon from the second quarter of 2018. The lower biodiesel prices resulted from customers’ preference to take on smaller share of the benefit of a potential BTC reinstatement, and from lower ULSD prices. D4 RIN prices in the second quarter of 2019 were $0.16 per RIN lower on average compared to the second quarter of 2018. The Company produced 126.8 million gallons of biomass-based diesel during the quarter, a 2.0% increase.

CEO C.J. Warner noted:  “The challenging margin environment continued in the second quarter as a result of uncertainty around both the BTC and small refinery exemptions. Within this context, our underlying performance was strong with a 15.0% increase in gallons sold and a 2.0% increase in gallons produced. We continue to believe that the BTC will be reinstated, which will reward our strong operational performance. On the non-operating front, we are pleased that we finalized the sale of our Life Sciences business and paid off our 2019 convertible notes without financing, primarily from cash on hand.”

The Company estimates that if the currently lapsed BTC is retroactively reinstated for 2019 and 2018 on the same terms as in 2017, REG’s Adjusted EBITDA would increase by approximately $81.0 million for the quarter.

At Beyond Meat

BYND reported net Q2 revenues of $67.3 million, an increase of 287%; gross profit was $22.7 million, or 33.8% as a percentage of net revenues, net loss was $9.4 million, or a loss of $0.24 per common share, compared to net loss of $7.4 million, or a loss of $1.22 per common share in the year-ago period; and adjusted EBITDA, which is a non-GAAP financial measure, was $6.9 million compared to an Adjusted EBITDA loss of $5.6 million in the year-ago period.

CEO Ethan Brown said, “We are very pleased with our second quarter results which reflect continued strength across our business as evidenced by new foodservice partnerships, expanded distribution in domestic retail channels, and accelerating expansion in our international markets. We believe our positive momentum continues to demonstrate mainstream consumers’ growing desire for plant-based meat products both domestically and abroad,”

Brown said that Q2 growth was driven by an increase in sales volumes of products in the fresh platform across both retail and restaurant and foodservice channels, driven by expansion in the number of retail and foodservice points of distribution, including new strategic customers, international customers, and greater demand from existing customers.

At Green Plains

Green Plains reported a Q2 net loss of $45.3 million compared with net loss of $1.0 million, or $(0.02) per diluted share, for the same period in 2018. Revenues were $895.9 million for Q2 compared to compared with $986.8M for Q2 2018.

CEO Todd Becker noted, ““We continued to face a challenging ethanol margin environment compounded by a reduced run rate early in the quarter as we emerged from a first quarter production slowdown that impacted our financial performance,” commented Todd Becker, president and chief executive officer. “We believe that maintaining a strong balance sheet while continuing to reduce operating expenses through our Project 24 initiative, should give us the financial stability to withstand any elongated margin weakness the industry may face.”

“While our company and industry have been hit hard by government policy, geopolitics and oversupply, we are not waiting for the recovery to happen. We will continue to transition this platform to high protein animal feed production as a growing driver of more predictable and stable earnings, beginning with the completion of our high protein project in Shenandoah, Iowa in late 2019.”

Becker confirmed an LOI to sell a minimum of 50% of its cattle subsidiary for $75M. He also said that Project 24 remains on course “in lowering our operating expenses to an estimated 24 cents per gallon across our ethanol platform.

Looking at the Sector

So there we have it, choppy waters. Fast growth at Beyond Meat, confidence and strong growth in renewable diesel crisis in first gen US ethanol and biodiesel, lackluster growth in enzymes, particularly in agriculture. Synbio product revenues continue to be small but fast-growing, as we see at Codexis; Indian biodiesel finally performing as long expected, but slow development within Aemetis’ cellulosic ambitions. Gevo continues to zig and zag in search of the capital to realize its ambitions in marine and jet, with significant offtakers showing increased interest in the platform.

The bottom line, the more advanced the technology (Beyond, Neste, Codexis), the better the results for this quarter. For a number of years there has been a real increase in the dependence of the industry on its more established companies and sectors, such as first-gen ethanol, biodiesel, and conventional protein. The pendulum has been singing towards “advances via advanced” and it will be interesting to see how the second half of the year shapes up.

For sure, the Trump Administration is just killing farmers, advanced manufacturing and domestic renewable fuels. EPA has been a thorn in the industry’s side ever since the agency was handed responsibility for administering the Renewable Fuel Standard, but never more so than now. The distress is real, though companies that saw the headwinds are doing better than others. As Green Plains’ Todd Becker observed, “we are not waiting for the recovery to happen.”

Transition is in the air — it is a Year of Living Endangeredly.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

The post Living Endangeredly- Q2 Biobased Earnings Roundup appeared first on Alternative Energy Stocks.

by Debra Fiakas, CFA

In a series that began in March 2019, with the article titled “Vagants on the Earth,”  we looked companies offering products that address the building problem of top soil degradation and loss.  In the four articles that followed we explored forestation technology, environmentally-friendly timber harvesting, and modern soil fallowing programs.  Unfortunately, we found few companies where investors could get involved quickly as minority investors.  Another company has joined the movement to build topsoil.  This one has publicly traded stock!

Last week Gevo Corporation (GEVO: Nasdaq) announced commencement of a trial for a soil treatment at its Luverne, Minnesota facility.  The treatment developed by Locus Agriculture Solutions (Locus AG) is aimed at improving soil health for greater crop productivity.  Of course, Gevo is interested in improving corn crop yields for feedstock used in its isbutanol, renewable gasoline and jet fuel production.  However, the nature of Locus’ soil treatment technology as a non-petroleum based fertilizer will also give Gevo bragging rights to a smaller carbon footprint.

The Rhizolizer soil solutions that is being applied to Gevo’s corn fields is one of two products in Locus AG’s technology portfolio.  It is composed of fungal and bacterial microbes that learned in the earlier soil series are vital for top soil productivity.  Microbes can affect soil structure and fertility by digesting organic plant matter and animal residues.  They can also help transport mineral nutrients and water to plants.  The product gets its name from the ‘rhizosphere’ region where soil microbes interact with plant roots and stems. 

Rhizolizer is applied through the crop irrigation system and can be tailored to a particular crop and field.  So far it has been used on a variety of crops, including strawberries, citrus fruit and potatoes.

Customers with turf and shrubs can use Locus AG’s Terradigm treatment, which is a ‘brew’ of active microbial strains in a liquid. While the product must be kept refrigerated, it is highly concentrated and is applied in small amounts with a spray.

Gevo’s strategy to improve corn crop yields without using more petroleum-based fertilizer certainly should enhance the company’s ‘street cred’ for environmental sustainability and low carbon emissions.  Even if crop yields do not increase at all, Gevo could benefit. First, any carbon footprint calculation could be changed in Gevo’s favor.

Second, Gevo could be recognized for carbon sequestration.  That said, carbon sequestration benefits are a bit elusive. Soil is a known carbon sink.  It is estimated that about one-third of greenhouse gas emissions originate from the conversion of land from grass and trees to cultivation.  Working in reverse, the amount of carbon dioxide that gets caught up in soil due to an improvement in soil health is entirely uncertain.

The field trials should provide Gevo with the data to determine if the soil treatment is also economic.  Improvement in crop yields at an attractive investment in soil treatment could have an impact on Gevo’s profits.  Furthermore, if somehow the carbon sequestration is quantified and translated into credits that could be also have a positive impact on Gevo’s profit margins.

Gevo has still not turned a profit with its isobutanol or renewable fuel products. Investors taking a long position in its shares will have to wait at least two more years for any profits trickle to the company’s bottom line.  In the meantime, the company taps its bank account for about $1.25 million each month to support operations.  Thus no matter how enthusiastic an investor might be about Gevo’s latest efforts to improve the upstream end of its feedstock supply chain with improved corn crops, the shares are only for those with plenty of patience.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 7/16/19 as “Gevo’s Soil Amendment”.

The post Gevo’s Soil Amendment appeared first on Alternative Energy Stocks.

by Jim Lane

In our three-part series this month on utilizing waste resources, we’ll turn to rice straw, which is a major headache for Chinese and Indian emissions. Praj and Gevo are working hard on perfecting a technology to address this.

Specifically, in the past month, Gevo (GEVO) also executed an agreement with Praj to develop jet fuel and isooctane from rice straw and other feedstocks. Gruber noted that “we believe this second-generation technology combination has great potential to address India’s rice straw burning problem and related air pollution, while generating low-carbon hydrocarbons for jet fuel and gasoline. Praj is a leader in technology to convert straw and bagasse into fermentable sugars, their technology marries up nicely with ours—saves development cost and time, while creating new licensing opportunities.”

Gevo’s first quarter results

In Colorado, Gevo reported a $3.8M Q1 loss on $6.4M in revenue, and highlighted that its recent licensing agreement with Praj shows that “Gevo can complete a definitive agreement licensing our biobutanol biocatalyst technology on a commercial basis allowing us to move forward and license our technology for isobutanol from molasses and sugar. We look forward to further developing and completing licensing deals that we expect will generate revenue without us having to deploy capital.”

The other major quarterly highlight was an agreement with the City of Seattle to utilize a blend of Gevo’s renewable isobutanol with conventional gasoline in its pilot program to reduce the Carbon Intensity (CI) levels of fuels used in Seattle’s fleet vehicles. For this program, Gevo has partnered with Hughes Group LLC, a Washington-based, Certified Service-Disabled Veteran Owned Business (SDVOB), to coordinate the blending, logistics, and delivery of the final product to the City. Additionally, Gevo is collaborating with the City to supply a renewable drop-in gasoline on an on-going basis to further reduce the Carbon Intensity of the fleet.

Dr. Gruber added, “In terms of operations, we continue to make progress on our plans to ‘de-carbonize’ our advanced biofuels production facility in Luverne, Minnesota. In April 2019, we began the commissioning of the Shockwave dry fractionation equipment. So far, the commissioning is on track. This technology fractionates the corn into a starch fraction, a germ fraction, and a fiber fraction. The germ will be pressed to extract food-grade oil. The starch fraction will go to fermentation as a feedstock. The fiber and germ protein are expected to be sold for value-added feed products for beef, dairy cows, pigs, and chickens. With this technology, we expect the margins for our feed-related products to improve. Over the coming weeks and months, we expect to begin sales of these new feed and protein products while optimizing the new process.”

Given the small-scale of Gevo’s operations and the parlous state of ethanol prices, the company continues to record product losses and the company’s decision to limit production while product prices are low is going to limit opportunities to reach profitability without adding more value on the protein side and bringing in more high-value advanced biofuels sales or licensing revenues from the likes of Praj and other partners. Action on all three fronts is underway.

The company noted that revenues for the three months ended March 31, 2019 were $6.4 million compared with $8.2 million in the same period in 2018. Hydrocarbon revenues were $0.7 million compared with $0.0 million in the same period in 2018. Cost of goods sold was $9.0 million for the three months ended March 31, 2019, compared with $10.6 million in the same period in 2018, primarily as a result of decreased production of ethanol during the quarter.

Cash status is good. The company at March 31, 2019 had $35.5 million, and the total principal face value of outstanding debt was $13.8 million.

Elsewhere in Rice-based technology

In March, we highlighted as one of our Top 10 Innovations for the week that architect Philippe Madec expects biobased materials like rice husk to change architecture and help reduce greenhouse gas emissions from buildings. Rice husk peaked his interest after construction companies in Camargue, France began using local rice farming waste as insulation.

Once cleaned up, it becomes a high-quality insulating material, allowing houses to keep a homogeneous temperature in both summer and winter, with an energy consumption close to zero. All this while giving a welcome additional source of income for rice farmers. It can be used to build low-cost houses with structural longevity, thanks to its pest-resistance. An Italian group even built a US$1010, 3D-printed house there, using rice husk as well as earth, rice straw and lime, he adds.

In October last year, we reported that In India, Bharat Petroleum Corporation Ltd’s commissioning of its second generation ethanol bio refinery will start building the proposed plant this week in Baulsingha and is expected to be completed by 2020. The refinery will use rice straw as its feedstock. Official sources told Petrol Plaza that they expect that this plant will help to create the biomass availability, which currently is set at about 120 to 160 million metric tons per year to meet the country’s new 20% ethanol blending by 2030 mandate.

And last September, we reported that the state of Haryana has signed a Memorandum of Understanding with Indian Oil Corp. to build a 100,000 liter per day ethanol plant using rice straw as feedstock. The $124 million plant is hoped to provide a market for rice straw for local farmers to reduce the burning that plague’s the region’s air every year. The facility can also use sugarcane bagasse as feedstock during the months when paddy straw is not easily available.

Last June, we reported that Punjab’s Minister of Power and Renewable Energy says he is working to promote the use of rice straw for bio-CNG and ethanol production in the state in an attempt to significantly reduce or eliminate burning of the 20 million tons of straw produced every year. About a quarter of it is used, but the rest is burned. Seven biomass-power plants using rice straw as feedstock are currently under development but the minister estimates as much as 6 tons of bio-CNG could also be produced.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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Ethanol and isobutanol producer Gevo, Inc. (GEVO:  Nasdaq) is installing equipment in its Luverne, Minnesota plant to improve efficiency in corn processing.  The company is leasing a proprietary corn fractionation or slicing process developed Shockwave, LLC based in DesMoines, Iowa.  The new equipment is intended to increase by-product output, including feed protein products and food-grade corn oil.  With sales of more valuable by-products Gevo expects to improve overall profit margins.  Shareholders can expect to see results after the first quarter 2019, when the equipment installation is expected to be complete.

Shockwave keeps a low profile with no corporate website and no one to answer phone calls.  However, there are plenty of other corn fractionation companies that are worthy of investor scrutiny.  The various technologies bring a higher level of profitability to dry mill ethanol production by increasing efficiency in corn feedstock utilization and creating new revenue streams.  Another plus is a reduction in greenhouse gas emissions.

Front-end corn kernel fractionation is a new step for conventional ethanol dry-grind production.  Conventional ethanol plants us a hammer or roller mill to grind whole corn kernels.  The ground corn is missed with water and then heated to break apart the starch polymers.  Free glucose is freed from the corn starch and then fermented into ethanol and carbon dioxide.  The non-starch portion is carried into a feed product called distillers grains (DDGS). 

It is not a very efficient approach.  Each bushel of corn yields about 2.8 gallons of fuel ethanol and 17 pounds of DDGS.  Corn is the largest expense for a dry grind ethanol plant, leaving ethanol and chemical producers vulnerable to corn prices. 

Corn kernels have three parts:  germ, fiber and endosperm.  Fractionation before grinding separates the three parts so that each can be used for its best attributes.    The germ is high in corn oil and its best suited as feedstock for biodiesel or even as food-grade corn oil.  The fiber or bran is also removed, leaving the starchy part of the endosperm or grit for fermentation into ethanol.  Removal of the germ and fiber before the grinding step affects ethanol yields because the endosperm portion of the corn feedstock that heads to the fermentation step has a higher concentration in starch.    Then the non-fermentable portion of the endosperm is turned into DDGS.

Fractionation decreases the amount of DDGS by-products that have been a mainstay of ethanol producers’ revenue streams.  Those DDGS also have lower fiber and oil content, but higher protein value.   However, fractionation does lead to an even higher-protein by-product that commands higher selling prices.  The resulting high-protein grains stream or HPGS has a wider market, including hog and poultry feed as well as ruminants. It has similar composition to soy bean meal and is suitable for monogastric animals.  Thus even though DDGS has represented as much as a quarter of ethanol producers profits in recent years, the addition of HPGS is expected to deliver even higher sales and profits. 

A study described in an issue of Applied Biochemistry and Biotechnology determined that return on investment in front-end corn fractionation equipment increased by 2% on a hypothetical 40-million-gallon per year plant.  Increased ethanol production and new higher protein DDGS by-products help to offset hefty capital costs associated with the additional equipment.  It also provides an opportunity for Gevo and other ethanol producers to break into different animal feed markets.

Bio-Process Group based in Indiana is a self-described engineering solutions company. Among other processes for natural fibers, the company offers its Modular High Value (MHV) biorefining system for corn ethanol production.  The system integrates fractionation, separation, fermentation and conversion technologies.

Oil seeds of all kinds are the specialty of Crown Iron Works headquartered in Minnesota. It claims to be the largest producer in North America of equipment used in oil seed preparation, processing and refining.  Crown’s corn fractionation process begins with a tempering step that enables the corn kernels to absorb enough moisture for the fracturing step.  The process focuses on the starchy endosperm or grit part of the kernel, sending that off to the fermentation process at the ethanol plant.  The germ is then converted into high protein animal feed or edible oil.

In case anyone has missed the point, ethanol producers are keen on maximizing the amount of pure fermentable starch from their corn feedstock purchases.  Cereal Process Technologies, LLC makes this concept the core marketing message for its corn fractionation equipment.  CPT claims its system leads to purer germ and bran streams that command higher prices in the market for ethanol production by-products. Another point in their pitch to ethanol producers is lower energy costs since corn components that cannot be turned into ethanol are not put through the fermentation process.

No doubt there are other sources for corn fractionation equipment.  Most likely those sources of private held just like the three mentioned here.  Perhaps the most important takeaway here is the need for ethanol producers to adopt processes to make their plants more efficient.  For price-taking competitive industry, cost reduction and efficiency are keys to success. 

Investors may be hearing more about investment in operational efficiencies by ethanol products.  More than 80% of corn ethanol plants in the U.S. are dry grind and they are all under pressure to maximize profits.  Gevo has not yet achieved sufficient scale to deliver profits from its ethanol and isobutanol products.  The company reported a 60% operating loss in the twelve months ending June 2018. However, the corn fractionation equipment can help move the needle to that end. The unique lease agreement with the elusive Shockwave equipment supplier means Gevo can also conserve its capital resources.  Gevo had $27 million in cash on its balance sheet at the end of June 2018, but needs at least $1.25 million per month in cash to keep operations going.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Corn Fractionation Improving Ethanol Production appeared first on Alternative Energy Stocks.

by Jim Lane

The Top Line. In Colorado, Gevo (GEVO) reported Q2 revenues of $9.4 million compared with $7.5 million in the same period in 2017. During the second quarter of 2018, revenues derived at the Luverne Facility related to ethanol sales and related products were $8.8 million, an increase of approximately $2.0 million from the same period in 2017. This was primarily a result of increased ethanol production and distiller grain prices in the second quarter of 2018 versus the same period in 2017. Non-GAAP cash EBITDA loss in the three months ended June 30, 2018 was $2.6 million, compared with a $4.4 million non-GAAP cash EBITDA loss in the same period in 2017.

The Big Highlights. In Q2, Gevo sold 6,281,409 shares of common stock (after giving effect to the one-for-twenty reverse stock split effected on June 1, 2018) under its at-the-market offering program, for gross proceeds of approximately $37.4 million, restructuring its balance sheet, and secured its first commercial off-take agreement for our renewable alcohol to jet fuel.  Specifically, a long-term agreement to supply its renewable alcohol-to-jet fuel (ATJ) to Avfuel Corporation, effective July 1, 2018. And, the Environmental Protection Agency announced the approval of isobutanol at a 16% blend level in gasoline for on-road use in automobiles.  Previously, isobutanol had been approved for on-road use up to a 12.5% blend.  A 16% isobutanol blend in gasoline provides the same oxygen content in gasoline as an E10 gasoline, and provides other value-added benefits such as low Reid Vapor Pressure or RVP, higher energy density, high octane, and low water solubility.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

The post Biofuels & Biobased Earnings Roundup: Gevo appeared first on Alternative Energy Stocks.

Synthetic fuel stocks are publicly traded companies creating transportation fuel from non-liquid feedstocks such as natural gas, coal, and municipal waste.  Drop-in biofuel stocks are publicly traded companies creating transportation fuel from organic feedstock that can be used, transported, and stored by conventional petrofuel infrastructure.  A synthetic fuel is a biofuel if it is made from organic feedstock.  It is a drop-in fuel if it is compatible with the existing infrastructure for petroleum based fuels.

This post was last updated on 7/20/2022.

Amyris (AMRS)
Archaea Energy, Inc. (LFG)
BioAmber (BIOA)
Codexis (CDXS)
Darling Ingredients (DAR)
Gevo (GEVO)
Global Bioenergies (ALGBE.NX)
Neste, Inc. (NEF.F, NESTE.HE, NTOIF, NTOIY)
N-Viro International Corp. (NVIC)
Sasol Ltd. (SSL)
Velocys, PLC (VLS.L)

If you know of any synthetic fuel or drop-in biofuel stock that is not listed here, but which should be, please let us know in the comments. Also for stocks in the list that you think should be removed.

The post List of Synthetic Fuel and Drop-in Biofuel Stocks appeared first on Alternative Energy Stocks.

“The global economy likely faces an economic crash of horrible proportions in 2020, not for want of a nail but want of low-sulfur diesel fuel,” writes renowned energy analyst Phil Verleger in a note this month titled “$200 Crude, the Economic Crisis of 2020, and Policies to Prevent Catastrophe”. Not good timing for a White House re-election effort if, as expected, the blame falls on lack of preparedness in the 2017-2020 run-up to the projected crisis..

It’s a dire scenario but there’s hard data behind it, and though few go as far as Verleger, almost every expert is warning of a low-sulfur diesel; refining capacity crunch. You can read the Verleger note in full here.

The root cause? A rule agreed by the  International Maritime Organization in 2008 and confirmed in 2016 to reduce sulphur content in marine fuels from 3.5 percent to 0.5 percent beginning in January 2020.

The proximate cause? Neither shipping owners nor oil refiners found a way to comply either through fuel-switching, crude-switching to bring in less sulphur-laden “sour” crudes, or to add enough refinery equipment to remove sulphur.

As the National Biodiesel Board’s Technical Director Scott Fenwick told The Digest:

The IMO (International Maritime Organization) has set new sulfur specifications for all marine fuels to not exceed 0.50% sulfur by the year 2020.  Right now, vessels are able to use high sulfur fuels in international waters but must use the same fuels within coastal waters (up to 200 mile radius) in what are called ECA (Emission Control Areas).  Typically, marine vessels use the dirtiest fuels available.  In order for ships to meet these new criteria, significant amounts of ULSD (ultra-low sulfur diesel fuel) will be need to be used for blending or in place of typical marine fuels.  Biodiesel is another option for blending.

NEXANT’s Ron Cascone added:

Instead of “playing checkers” with refinery modifications or scrubbers for a short term fix, we should be “playing chess” with low-sulfur, low NOx, and low-carbon solutions like biofuels or  methanol, LNG,  or DME, which can be bio-based. The stakeholders needing to examine strategies in this area include, besides the refiners, fuel brokers, and ship owners, also companies that use ocean shipping (that is, nearly all manufacturers, retailers, etc.)  and have commitments to lowering carbon footprint  (that is, many companies).

Why were refiners and shipping companies caught flatfooted?

There was an expectation that everyone would kick the can down the road, and extend the deadline to 2022. But the deadline was not extended.

Why can’t the US and others simply frack their way out of a supply problem, as in the past?

It’s not something you can frack your way out of. It’s not only about crude inventories but about low-sulphur refining capacity.

Tough timing for a shortage

The shift in demand — 2 million barrels per day — comes at a time when global diesel demand for road transport and other uses is on the rise. The resulting shortage of low-sulphur diesel leads to the bid-up in “light sweet” crudes and a shift to producing more diesel and less gasoline from those crudes — and the price increase that facilitates this supply and demand shift is in the $160 to $200 range. Enough to tip the global economy into recession or depression, says Verleger.

As Verleger points out, there’s already a world commodity except perhaps wine that has so much variance, and especially so in sulphur content. As Verleger notes, “the diesel fuel produced from Nigeria’s best crude oil has a sulfur content of 0.13 percent when refined, while the diesel refined from Middle East light crude oil, one of the most common crudes, contains 0.53 percent. The Arab Heavy crude that generally upticks in supply to meet demand increases contains between 1.8 and two percent sulfur. Shale oil from fracking operations is loaded with sulphur — so it is not a case where fracking operations will necessarily save the day.

So, the swing producer necessary to moderate prices when demand shifts is going to be hard to find, despite the fact that, as Verleger notes, “the public-health arguments for the IMO 2020 rule are incontestable and compelling,” and the refiners and shipping owners have had 12 years to make ready.

The impact?

Verleger writes: “The crude price rise will send all product prices higher. Diesel prices will lead, but gasoline and jet fuel will follow. US consumers could pay as much as $6 per gallon for gasoline and $8 or $9 per gallon for diesel fuel.”

Will compliance be forgotten? Can the world simply embrace sulphur-laden marine fuel forever?

IMO’s secretary-general Kitack Lim told Platts recently: “At this point, the regulation which brings into force the 0.5% limit in sulfur in fuel oil from January 1, 2020 cannot be changed from a legal perspective, so there is no possibility of delay.” As far as individual countries simply ignoring the requirements for operating with low-sulphur fuels, it’s worth noting that the predictions for $200 oil do not relate to low-sulphur oil, but all oil.

Mitigation steps that might be taken

There are several options, although installing equipment faster at global refineries does not appear to be one of them. Fuel-switching to liquid natural gas is one. Adding sulphur-scrubbing equipment to ships is another (unlikely). Re-visiting the rule is a third, and very unlikely — the IMO recently voted 171-3 to reduce greenhouse gas emissions. The US could release light sweet crude from the Strategic Petroleum Reserve. Non-compliance is a risky option — shippers that violate the rule are likely to have their insurance invalidated, based on recent IMO moves.

The biofuels option: biorefining capacity eases the oil refining strain

As Fenwick told The Digest. “Biodiesel will play a role, whether it is on the ship, or backfilling the low-sulphur road transport volumes that are diverted from traditional oil refineries to serve the new demand for low-sulphur marine fuel.” Already biodiesel and renewable diesel have extended the global refining capacity and fuel supply by 4-4/12 percent. There’s an opportunity to step up here to supply more low-sulphur fuel, and it is estimated that one billion gallons per year could be added to the supply of low-sulphur fuels./

As we reported in March 2017, the International Standards Organization has created the new F class of marine fuels that allows for blending of up to 7% of FAME biodiesel, allowing for more 10 ppm sulfur automotive fossil diesel to be used in the marine fuel pool. Adding Cloud Point and CFPP (Cold Filter Plugging Point) to the specifications are meant to help increase the uptake of biodiesel in marine fuels by letting operators know when fuels need to be heated.

Fenwick commented, “A few years ago there were no grades. Those grades are minimal demand right now as shippers become used to them. I expect they will become significant in the next two years.”

And, there’s renewable diesel. Although production quantities are small, so far, in the context of the global marine trade, $160-$200 per barrel low-sulphur crude prices will shine more attention on sulphur-free biodiesel and renewable diesel. For example, a 7 percent biodiesel blend with Middle East light crude oil (0.53 percent sulphur), brings that fuel into compliance. And there’s reason to cheer on that score.

An an Exxon Mobil found in a study on marine biodiesel:

The results obtained during the biodiesel trial have shown no negative impacts. Biodiesel has been used for many years in similar engines in land-based applications with no adverse effects. Biodiesel blends (B5 and B7) can be utilized in the marine environment onboard a properly operated and maintained vessel with a diesel engine. As with any fuel, proper storage and handling are key in maintaining fuel quality to ensure trouble-free operation.

How much excess capacity is available?

The estimates we have received suggest that as much as 1 billion gallons per year in excess capacity is in place around the world — or 65,000 barrels per day. Enough to support 7 percent blends of one million barrels per day. And, when you think about it, global biodiesel and renewable diesel could all be put to use in supporting a transition to low-sulphur fuels — and with as much as 4 billion gallons of capacity, there’s enough to support the 2 million barrels per day volumes that analysts say are needed — at 14 percent blends. That supports compliance via all that Arab Heavy .

Combined with some fuel switching to LNG, and targeting the right crudes for expanded diesel supply — we might find that global recession might well be averted. And, should actions not be taken to bring a supply of biodiesel and renewable diesel into marine fuels — we might find that $9 per gallon US fuel prices might well provide the incentive necessary to re-invigorate the discussions around alternatives.

Who is impacted?

Companies like REG [REGI], World Energy, Diamond Green (the Valero-Darling [DAR] Joint Venture), Ensyn, Gevo [GEVO], Fulcrum BioEnergy, Red Rock Biofuels — all of these are in the conversation when it comes to expanding diesel capacity. And a host of smaller biodiesel producers in the US, across the Americas and in Europe and Asia. Also, think DME – such as Oberon Fuels.

What can Congress do?

Distribution of this Verleger report on Capitol Hill might help. Experts tell us that ‘anything that educates the Congress that petroleum is a global market with a global price is a good thing. Also, the US government might well mandate more biodiesel to make sure those backfilling volumes of ULS diesel is available for road transport.

NBB’s Scott Fenwick observed, “Congress did create the RFS to extend and expand the nation’s refining capacity – and with low carbon, low sulphur technology in mind. They could not have foreseen this particular supply crunch but they did prepare us for a crunch with the RFS

Further reading

Here’s a relatiovely definitive report on the topic from NEXANT:

PERP 2017S7: Technologies to Meet New Bunker Fuel Specifications.

Bio-methanol  is covered, along with other feasible bio-bunkers in Nexant’s recent report, Biorenewable Insights: Biofuels for Land and Sea.  This report presents technoeconomics for a very wide range of land and marine biofuels . The TOC is here and the abstract is here.

And, could bio-methanol be a significant player in marine fuels in the future? The Methanol Insitute believs so, and here’s their latest deck exploring the options and opportunities.

In addition, for Nexant’s somewhat more conservative counter-view to Verleger’s, see the TOC for Petroleum and Petrochemical Dynamics, Refined Products, December 2017.

The post The Low Sulfur Diesel Crisis of 2020 And How To Prevent It appeared first on Alternative Energy Stocks.