The Ethanol Industry and Gevo’s Vision of the Future
By now, you’ve probably heard a thing or two about Gevo Inc. Some may be true, some are not. But there is one thing everyone knows if they know us at all—we like straight talk. Since we’re the new kid on the block I would like to make sure there is no confusion about our positions and aspirations.
Some people wonder whether we might be a threat to the ethanol industry. Nothing could be further from the truth. In fact, our entire business model centers on converting ethanol capacity to produce isobutanol through joint ventures with existing ethanol producers, and we are in discussion with numerous plants controlling more than a billion gallons of capacity. We think an isobutanol fermentation industry is the natural next step in the evolution of the fermentation alcohol business and will provide corn growers and rural communities a sustainable and profitable future. There is no reason ethanol and isobutanol cannot co-exist in the market. Indeed, together they might be able to expand the market for all.
The Upside of Isobutanol
Isobutanol is a four-carbon alcohol that can be made by refining petroleum or via fermentation. Whether made from fossil or renewable carbon, the isobutanol molecule is the same, hence its “drop-in” label. Renewable isobutanol is used as a solvent and is currently approved for blending in gasoline to 12.5 percent. Isobutanol can be easily converted using known chemistry into butenes, which are critical four-carbon platform chemicals that can used in the production of 40 percent of all chemicals and 100 percent of all hydrocarbon fuels.
The primary commercial advantage of isobutanol is its market versatility. And, there are important market dynamics that drive interest by the chemical sector. The significant drop in natural gas prices has caused the petrochemical industry to use natural gas to replace petroleum as the feedstock in the production of some materials. This widespread development has caused a worldwide shortage of butenes. It is a development many believe will continue to grow. Specialty chemical company, German-based Lanxess AG, the world’s largest producer of synthetic rubber, has invested in Gevo and expects to become a customer so it can access our isobutanol for the manufacture of butyl rubber. Why? Their business is growing and they need an alternative to oil for raw material supplies. Chemical companies are also interested in finding alternative sources of raw material to hedge against oil price volatility. These two market dynamics are driving significant customer interest and willingness to negotiate long-term off take agreements. Gevo’s business plan forecasts sales primarily into the chemicals markets for the production of our first few plants.
Gevo plans to eventually serve the liquid fuels market with the first target being the biojet market. Isobutanol can be converted into kerosene for jet fuel. We are pursuing fuel certification with the U.S. Air Force and ASTM, and plan to be ready for commercial sales in 2013. We are also interested in gasoline markets where the properties of isobutanol add value to refiners in complying with either their clean air requirements or renewable fuel obligations.
With our unique ability to produce a fermentation alcohol with hydrocarbon drop-in characteristics, we have connections to the ethanol, advanced biofuels, petrochemical and refining industries. While we don’t share every concern of each of these industries, we share some with all. We are members and participate on the boards of the Renewable Fuels Association, the Biotechnology Industry Organization and the Advanced Biofuels Association. We are associate members of the National Petrochemical & Refiners Association and American Petroleum Institute. This presents us with some interesting challenges in Washington. Our trade association work is guided by these basic values: we strive to be transparent about our commercial interest, work as best we can to support the broader biofuel industry’s progress and, finally, remain neutral in matters that do not impact us, even if they do not benefit us.
At the highest level, we believe that policy makers should focus on the “whole barrel” and not just fuels. Energy policy should treat all biofuels equally so they may compete on price and performance. When U.S. policy was crafted, the only economically viable biofuel was ethanol. That is no longer the case. The nation’s energy policy needs to be revised to allow new biofuels into the market. This may mean modifying some existing regulations, like the Reid Vapor Pressure rules, so isobutanol can be blended with ethanol gasoline blends and still comply with the one-pound waiver. On the blenders credit extension, we will support the industry’s consensus position and have a particular interest in the alternate alcohol provision. We oppose using federal policy to support ethanol-only infrastructure, unless there is an equal level of support offered to infrastructure supporting the development of other biofuel molecules and cellulosic conversion. And, we oppose any change to the renewable fuel standard at this time.
Gevo, Corn and Cellulosic Fuels
First of all, on the food vs. fuel debate, we have a clear and concise position. Food always wins because people come first. We work hard to educate our stakeholders that the fermentation alcohol industry uses corn starch, not corn. And, the highest food value portion, the protein, is returned in an upgraded form to the food chain as animal feed. While we have our target set on retrofitting existing ethanol capacity, we are readying our technology for deployment on cellulosic biomass. We do not intend to process the biomass, but instead to be buyers of fermentable cellulosic sugars. Indeed, the long term off-take agreements we should be able to secure from our customers might very well be the missing ingredient to “bankable” project financing for biomass conversion facilities.
Maybe because many of us were born and raised in the Upper Midwest, we have a strong affinity for rural communities and want to see them remain strong and vital. We like working with people we can depend on, people who are the best at what they do. We found those kinds of people in Luverne, Minn., where our first plant will come online next year. Employees, community leaders and farmer suppliers are all great assets to our operations there.
The executive team at Gevo has invested decades in developing products and advocating for the biobased economy. Our commitment to seeing that vision through to the end is strong. Now that we’ve successfully completed our initial public offering, we believe we have the wherewithal to do it. No longer is the promise of replacing petroleum a vague and distant dream. Gevo plans to begin production of isobutanol by mid-2012. Many other companies are poised to join us. It is our hope that the existing ethanol industry opens its mind to the possibilities and makes room for a new generation of biomolecules. Gevo may be one of the first to realize this vision but we will surely not be the last. We pledge to cooperate with anyone who shares our vision and to be a positive force everywhere we have a leadership voice.
Author: Patrick Gruber