CO2 Outlook: Consequences of the Crunch

As the U.S. ethanol industry reduced production this spring, a vital supply of commercial and industrial carbon dioxide dwindled. It must return soon or buyers will be compelled to seek product from alternative sources, which could drive up prices.
By Sam A. Rushing | June 10, 2020

Carbon dioxide is a commodity that’s present, if not always seen, in virtually every part of our lives: The foods we eat—meat, bread, spices, vegetables—are often combined with or individually quick frozen (IQF) with CO2.

The list of products using carbon dioxide is long, from paper (pulp and paper mills use CO2 for effluent treatment) to everyday metal objects and metallurgical products (CO2 is used in steel mills, welding shops and foundries). Cleaning, too, is a major application for CO2. From electronics, to ship hulls, to buildings, dry ice blasting (using so-called “rice dry ice”) uses quarter-inch extruded particles under pressure to scour surfaces. And even in today’s bourgeoning cannabis industry, CBD oil extraction is enhanced via CO2. These and countless more applications for carbon dioxide make the product essential to manufacturers, commercial businesses and consumers alike.

The COVID-19 pandemic, coupled with the OPEC-Russia oil price war, has had a dramatic negative impact on the global transportation fuels sector, reducing gasoline demand by as much as 28% and causing widespread ethanol plant shutdowns and reductions in production. This, in turn, substantively depressed CO2 production from what is one of America’s top fermentation byproduct suppliers.

Out of the approximate 210 ethanol plants in the United States producing some 16 billion gallons of ethanol, about 45 ethanol plants supply CO2 byproduct to an adjacent CO2 plant, usually owned by the CO2 manufacturers. Now, the ultimate question is how far might ethanol production drop—if it hasn’t already bottomed out—and how long will the situation persist. The longer plants stay offline, the worse the CO2 supply scenario will get.

In late March, Forbes stated gasoline consumption in the U.S. will drop by 55%, due to COVID-19. Separately, it has been stated that jet fuel could drop 70% due to the pandemic. European ethanol production is suffering, too.  IHS Markit recently stated that ethanol plant shutdowns in western Europe, including plants offline before COVID-19, represent more than 1 billion liters (264 million gallons) of capacity, reducing overall production there to 4.2 billion liters (1.1 billion gallons), or down 12%, as of early April.

One bright side to the COVID-19 downturn is the use of fuel ethanol in hand sanitizer production (see “Producing to Protect” on page 18). Of course, the worldwide reduction in GHG emissions has been another appreciable silver lining to this otherwise disastrous situation. The Guardian indicated there could be a 5% reduction in global carbon emissions in 2020, or some 2.5 billion metric tons. All of this represents the fossil fuel industry’s largest annual drop in CO2 emissions on record, eclipsing the carbon slump triggered by all of the largest recessions of the last 50 years combined. The International Energy Agency warned this is not a climate triumph, but a helpful drop in emissions due to the economic meltdown experienced by too many. Through the lens of positive climate change results, this clears the air in some major cities, setting an example of the dramatic impact on air quality, driven by radical change in the production and consumption of hydrocarbon-based fuels. This drop in CO2 emissions will also be experienced in the power-generation sector, both for coal and gas fired plants, which will see its carbon emissions drop by 6.6% this year.

With respect to real-world experiences, as related to biofuels and their byproducts, specifically CO2, a return to normalcy is needed. In mid-May, the Renewable Fuels Association indicated some two-thirds of the nation’s ethanol plants had idled or reduced production, temporarily bringing the industry’s production to less than 9 billion gallons per year (annualized basis) compared to its typical 16 billion-gallon-plus rate. Carbon dioxide for the merchant market, and even captive markets like enhanced oil recovery, is highly linked to the CO2 supply from ethanol plants. In fact, over 40% of the CO2 for these markets is sourced from U.S. ethanol plants. Hence, these sectors are experiencing a significant drop in product availability.

Overall, the ethanol industry supplies about 45% of all domestic CO2. Beyond the ethanol industry, CO2 is also supplied by anhydrous ammonia plants, hydrogen reforming facilities, and natural and miscellaneous sources such as ethylene oxide production facilities, natural gas processing plants and, in one case, a flue gas recovery facility.

Supply Impact
Examining the CO2 supply network more closely, it is arguable that this may be the greatest supply crisis on record for merchant producers and suppliers. While major gas companies would only state that March was “challenging,” this is an obvious understatement.

The applications for CO2 in food processing are both numerous and diverse—meat, poultry and seafood operations account for the single-largest demand center within the CO2 merchant market. In fact, on average, at least 45% of CO2 is dedicated to the food sector. The soft drink, beer, and fountain service sector represents an additional 25% of demand. Collectively, the food and beverage sectors consume more than 70% of overall CO2 demand, with regional variability. The balance of product is consumed in markets such as water treatment, chemical manufacturing, metallurgical production and other uses. Dry ice is a significant part of overall usage, particularly in food processing, and specifically in the meat and poultry business, as the product is needed to reduce meat temperatures and maintain fresh and frozen shipments.

In food processing, numerous applications for CO2 are critical, from stunning hogs and poultry before slaughter, to use in chilling meat to produce hamburger, patties, nuggets, and sausage. Further, CO2 gas is used in packaging food products, to enhance freshness, and in freezing systems for IQF entrees and a range of meat and allied products.

The publication Food Processing stated in mid-April that a lack of industrial CO2 was worrying American meat processors. And Geoff Cooper, president and CEO of the RFA, recently warned The Poultry Site, that the country was “headed for a train wreck in terms of the CO2 market.” Majors in the meat and poultry processing industry, such as Cargill, have indicated they are noticing CO2 prices rising, and experts fear that supplies may be disrupted if the situation persists.

Another CO2 supply issue is product originating from the oil refining sector, specifically from reformer operations. Merchant carbon dioxide supplies are particularly stark on the West Coast and other regions where refineries supply significant volumes of CO2. All of these factors are essentially wreaking havoc on most CO2 markets and may have a significant impact on food supplies. Meat and poultry may be particularly affected because CO2 is used as a gas refrigerant for preserving packaged foods, as a liquid for freezing, chilling and generating CO2 snow, and as extruded dry ice in the processing industries.

As vital as food is, it was paper products—toilet paper and paper towels—that were in short supply during the early days of the pandemic. The nationwide hoarding of paper products, and the resultant demand surge, was a stark reminder of how critical CO2 production is to paper mills, where it is used (as a green alternative to sulfuric acid) to reduce effluent Ph.

Road to Recovery
Full resolution with the supply of CO2 from ethanol plants will occur when existing or replacement sources become operational. It can require nine to 12 months to build a new plant, and if replacement sources are found from other source types, such as new ammonia plants, the logistical economics will be difficult to reconcile. The cost of CO2 to the producer is highly driven by distribution costs; the cost of production is often secondary. The traditional sources are currently doing their best to supplement product, both from ethanol plants and other source types with extra capacity to offer.

If reduced ethanol production persists, and CO2 from ethanol plants largely or fully becomes unavailable, the industry will have to commit to alternative source types. If that happens, higher selling prices for merchant CO2 will become the norm. With the current shortages, some companies are allocating product, but not without price changes. Further, with increased distribution costs, surcharges are added, which have reportedly ranged from next to nothing to as high as $100 per ton.

The fear the CO2 industry has today is a loss of significant tonnage to alternative means, perhaps permanently. This could include converting to alternative refrigeration methods, when possible. Other examples are conceivable, most leading to a higher cost, producing less efficient results, sometimes a lesser quality, and of a less environmentally friendly nature. CO2 companies don’t want this to happen. But should the shortage continue, or grow, new source investments will have to be made, or new creative methods of producing from source types that have not been available before will have to become operational. These substitute methods could include flue gas (which requires heavy subsidies to be economically feasible) or biogas (which is not currently an accepted source type but could be). As with the anhydrous ammonia source crisis years ago, triggered by high natural gas prices, solutions were found. It is unlikely that this shortage of CO2 will persist because, upstream, the dynamics causing the ethanol market drop shouldn’t continue long term. A return to normal will soon occur, and this should be a shorter, rather than longer, disruption to our industries.

Author: Sam A. Rushing
Advanced Cryogenics Ltd.