Big Oil Goes Big in Advanced Biofuels
While Congress continues to debate the Navy’s request for biofuels in their budget, ‘Big Oil’ is taking big steps to compliment government investment in advanced biofuels. Recently, BP and Exxon Mobil have announced huge investments in developing advanced biofuels at the commercial level.
A photo of a modern Dresser Wayne pump at a BP service station by Aaron Lawrence
Why invest in biofuels now?
Oil companies have been pushed to increase their investment in biofuels by the Energy Independence and Security Act of 2007. The Act mandates 36 billion gallons of biofuels to be incorporated into gasoline annually by 2022 and has set targets to meet this mandate. U.S. Biofuels companies produced 15 billion gallons of ethanol and biodiesel in 2011 (about 10% of all gasoline) to be blended in oil refineries. Oil companies could face penalties if they do not fulfill quotas set by the Renewable Fuel Standards for blending biofuels into their product.
The act has been extensively contested by oil companies. In a recent testimony, the American Petroleum Institute’s President and CEO Jack Gerard stated that the act’s renewable fuel standards were driving decisions that were “inappropriate and unwise.” While the act’s mandated quotas have been reformed, the long term goals of expanding biofuels production stand.
Pressed forward by mandates and increasingly cost competitive production methods, the biofuels market is expected to significantly expand in the near future. Big oil companies, investing to meet the demand of energy markets in twenty plus years, see the light at the end of the tunnel for biofuels.
BP’s Investments
At a recent Atlantic Council event BP’s CEO of Alternative Energy Katrina Landis stated that she expects biofuels will increase to 30% of the liquid fuel market by 2030. The Energy Information Agency (EIA) also predicts the expansion of biofuels markets, estimating that U.S. liquid biofuels usage will nearly triple by 2030. Landis spoke of the inevitability of a global transition to renewable energy, with the rise in demand for primary energy, and the concerted global effort to expand low carbon options.
BP is heavily invested in producing cellulosic ethanol from sugar cane, wheat, and switchgrass. In September BP invested around $750 million to claim full ownership of Tropical Bioenergia, a Brazilian biofuels company. With the purchase, BP expects to quadruple its sugarcane-crushing capacity to around 120 million gallons of ethanol equivalent per year. BP’s plan is to use sugar cane to commercially produce cellulose ethanol, an advanced biofuel that is not yet commercially available. In contrast to the predominantly produced starch ethanol, cellulosic ethanol production has a higher productivity yield per acre and reduces green house gases, by 85% over reformulated gasoline.
A demonstration facility has already been built for cellulosic production. BP has started to develop a 36-million gallon commercial-scale plant and 20,000 acre farm in Florida, to become the first commercial scale cellulosic ethanol producing operation in the world.
Sugarcane field
BP, along with the Lawrence Berkeley National Laboratory and UC Berkley plan to invest $500 million over 10 years to support the Energy Biosciences Institute. BP claims the institute will be “the largest public-private partnership of its kind in the world,” focused on exploring ways in which biosciences can be applied to produce biofuels.
Exxon’s Investments
Exxon Mobil, the world’s largest publicly traded company (by market capitalization and revenue), has also made big investments in biofuels; -its bets are in algae feedstock. Exxon has been mounting an algae fuel project since 2009, investing in algae production technology similar to the Navy’s algae production investments. Algae biodiesel was produced in large volumes to power the Navy’s Nimitz carrier strike group in the current RIMPAC exercises.
Exxon believes that they will be able to produce algae at a cost effective commercial level. If research and development milestones are successfully met, Exxon, in partnership with Synthetic Genomics expects to spend more than $600 million in algae biofuel research and development.
The Department of Energy has funded both algae and cellulosic biofuel research, seeking to bring down the production cost of both feedstocks. Working with government incentives, BP and Exxon will soon commercially produce advanced biofuel’s feedstocks to stake their claim in the expanding biofuels market. These developments are prime examples of how public sector investment can build a bridge toward private sector production in the clean energy market.
