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updated: 12/11/2012 1:50 PM

Cellulosic biofuel to surge in 2013

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Bloomberg News

Cellulosic biofuel companies will boost production almost 20-fold in 2013 as the first high-volume refineries go into operation, signaling a shift from an experimental fuel into a commercially viable industry.

Production of the fuel made from crop waste, wood chips, household trash and other non-food organic sources will reach 9.6 million gallons in 2013, up from less than 500,000 gallons this year, according to data compiled by the U.S. Energy Information Administration and obtained by Bloomberg News.

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That gain will leave the industry short of the government's target for 1 billion gallons that gasoline and diesel producers are expected to blend into their products next year under a federal energy regulation. The industry may not meet those targets for another five years, and companies from Kior Inc. to Abengoa SA are closing the gap.

Kior opened the first commercial cellulosic biofuel plant in the U.S. in October and will break ground early next year on its second facility, which will be able to produce about 40 million gallons a year, Kate Perez, a spokeswoman, said in an e- mail yesterday. "We believe that there will be ample opportunity in this space for many years to come," she said.

At least four more companies expect to open refineries by the end of next year and two additional plants are scheduled to begin production the following year. They probably won't make enough fuel to meet the 2014 targets, and the industry will "catch up in the next three to five years" to the requirements, said Adam Monroe, North America president for Novozymes A/S, the Danish company that supplies ethanol companies with enzymes.

"We've moved beyond lab and pilot and we're now into commercial phase," Monroe said in an interview. "You're seeing the commercialization and the first wave of plants coming on."

Under the federal Renewable Fuel Standard, gasoline and diesel producers are required to blend 36 billion gallons of biofuel a year into their products by 2022, including 16 billion gallons of cellulosic fuel.

The targets rise each year on a schedule set by a 2007 energy law, and the Environmental Protection Agency has the authority to lower them annually to reflect the industry's actual output. The EPA cut the 2011 cellulosic biofuel requirement to 6 million gallons from 250 million gallons and reduced the 2010 mandate to 6.5 million gallons from 100 million gallons.

It cut this year's target to 10.5 million gallons from 500 million gallons and hasn't revised its goal for 2013.

Kior's Columbus, Mississippi, plant will eventually be able to make as much as 13 million gallons a year. Ineos Bio's plant in Vero Beach, Florida, is due to go into operation this year with annual production capacity of 8 million gallons. Both will run at about 50 percent of capacity next year, according to an Oct. 18 letter from EIA.

Additional Plants

Abengoa is expected to open a plant next year in Kansas with capacity of 25 million gallons a year. Poet LLC is on track to open a facility in Iowa that will be able to produce 25 million gallons a year, and Fiberight LLC will open one in Iowa with about 4 million gallons of capacity.

The EIA didn't include these facilities' expected output in the 2013 forecast in its letter.

DuPont Co. is scheduled to open a facility in 2014 with annual capacity of 30 million gallons and Chemtex International, a unit of the Italian chemical company company Gruppo Mossi & Ghisolfi will open one with 20 million gallons

Unrealistic, Unfair

The gap between the RFS requirements and the industry's actual output prompted oil and gas trade groups to call for the policy to be repealed. The American Petroleum Institute filed a lawsuit in September calling the requirement unrealistic and unfair, and said Nov. 27 that the RFS is "unworkable" and should be repealed by Congress. The House of Representatives is considering a bill that would limit the EPA's authority to set cellulosic biofuel targets.

Policy certainty is necessary to ensure investments continue in cellulosic biofuels, said Novozymes's Monroe. Novozymes provides enzymes to Poet, Fiberight and Chemtex.

He compared the industry to standard, corn-based ethanol, which surged in production from 2005 to 2008. The RFS caps its requirement for corn ethanol at 15 billion gallons a year and the fuel has "almost completed in its mission," he said.

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