Cellulosic Biofuels
Creating a vision for advanced biofuels in the renewable energy industry of 2020 Sue Ellerbusch President, BP Biofuels North America Renewable Energy Technology Conference Sept. 21, 2011
Thanks very much for giving me this opportunity to share my perspective on the role that cellulosic biofuels can play in the energy future of the nation and the world. You heard my boss, Katrina Landis, mention Thomas Edison earlier. Well, one of Edison’s best friends was Henry Ford. Ford, of course, didn’t invent the automobile. Credit for that is usually given to Karl Benz. Ford’s genius lay in production the moving assembly line, the five-dollar day and quick-drying black paint helped convert the automobile from a “luxury good” to a mass consumer product. The real breakthroughs that transform the way we live are often like that. Steady, determined innovation, rather than “eureka” moments of invention. BP Biofuels aims to do for cellulosic biofuels what Henry Ford did for the automobile. We didn’t invent cellulosic biofuels, nor did we build the first pilot plant or the first demonstration unit. But BP will construct the first fully integrated commercial-scale cellulosic biofuels facility and begin to commercialize this industry at scale. In the brief time I have today, I want to do two things. First, tell you about why and how BP is investing in advantaged biofuels, and second, outline the necessary environment in terms of public policy that will help make a new era of biofuels a reality for America and the world. BP and biofuels BP is in biofuels because we are an integrated energy company and the world of energy is changing dramatically. Liquid hydrocarbons are a very useful and efficient means of storing and moving energy, particularly for transportation. That’s why, over the last century, wheeled vehicles worldwide overwhelmingly use gasoline and diesel fuel. Changing this will be very difficult, very expensive and very time-consuming. So substitutes for transport energy must be viable substitutes for oil, and this makes transport energy, as opposed to electricity, a global market. The International Energy Agency believes that the number of cars on the world’s roads is likely to double by 2030. The good news is that we don’t believe this leads to a doubling of oil demand – increasingly fuel efficient vehicles, including hybrids,
1
will lead to a decline in demand in the OECD economies, and mitigate demand growth in Asia and South America.
Biofuels: A Growing Market… Global biofuel penetration of gasoline/diesel demand 12
Volume (million barrels/day)
19% 10
consensus range
8
11%
6 4
Assumed limit of ‘first generation’ technologies
announced regulation
2 0 2005
2010
2015
2020
2025
2030
Source: McKinsey, BP analysis, IEA2007
SLIDE 1 – BIOFUELS VOLUME Biofuels can mitigate the demand by displacing some of the additional oil that would otherwise be required. In fact biofuels can be seen as the ‘new oil’ but unlike oil they are created from unlimited supplies of fresh biomass. Biofuels provide us with a “renewable well” and I often see a typical ethanol plant as a four to six thousand barrel a day well. Biofuels will play an increasing role in the energy mix and BP is responding to the opportunities these changes represent. But we’ve actually known this for some time which is why biofuels are not a “technology hedge” or a way of ensuring that we can comply with blending mandates but a focused and targeted business for BP.
2
Biofuels’ strategy is based on 3 strategic initiatives Sugarcane ethanol Brazil Advantaged molecules biobutanol Advanced technology lignocellulosics
Low-cost
Low-carbon Scalable Sustainable
SLIDE 2 – LOW COST LOW CARBON SLIDE Four criteria guide our investment in advantaged biofuels. First, they must be low-cost so that the biofuels we make can compete with oil without any subsidy by 2022. Second, biofuels must be low-carbon. We anticipate producing biofuels in the U.S. that meet the national goals of reducing the GHG levels in transport fuels by over 60 percent from current levels. Third, they must be scalable. As Henry Ford realized with automobiles, there is no point in making a boutique product. Only mass production and mass distribution can move the needle. Finally, biofuels must be sustainable. Environmentally sustainable, economically sustainable and socially sustainable. If a biofuels product can meet these four criteria, then it can truly be said to be an advanced biofuel worthy of a strategic investment by an integrated energy company. So far, these criteria have led us to three main strands of large-scale investment:
Producing biofuels from sugarcane in Brazil,
Developing advanced fuel molecules, such as biobutanol, which has a higher energy content than ethanol;
3
And finally, cellulosic biofuels from dedicated energy grasses grown in the southern United States.
Because of limited time, I will focus only on the last, though I will discuss the others in the Q&A if you have questions. Cellulosic biofuels technology is here Cellulosic biofuels technology sits in a sweet spot, and we believe that large scale commercialization is very close indeed. This technology will deliver on the promise of low-cost, low-carbon, scalable, and sustainable transport fuel. Simply put, no other biofuel has the potential to deliver the necessary volume at the low cost of cellulosic biofuels. Our product will be made from dedicated energy grasses, converted into fuel using proprietary technology that extracts sugars from the cellulose in the plant and converts it into liquid fuel. The energy grasses we will use are 10 to 15 feet tall perennial grasses that grow in warm climates and have a very high fiber or cellulose content – so they’re very high yielding. This combination of feedstocks and proprietary BP technology means cellulosic biofuels can deliver yields between four and five times that of corn ethanol on a per acre basis. And they can be grown on land that is not suited to growing food crops economically.
4
BP’s activity To make this vision a reality, BP is developing a very robust cellulosic biofuels business in the US.
BP’s biofuels investments Biofuels operations Supported institution BP-supported research institute
Butamax Advanced Biofuels head office Sugar-to-diesel research with DSM (ex-Martek)
Dedicated biofuels technology centre, San Diego (operating)
Cellulosic ethanol demonstration plant, Louisiana (operating)
Vercipia Biofuels Commercializing cellulosic ethanol, Florida
Vivergo Fuels (JV) world-scale wheatethanol plant, UK
Office location
(under construction)
Biobutanol technology demonstratio n plant, Hull UK (JV) (start-up phase)
(farm planting started)
Tropical BioEnergia Ethanol mill (JV)
2011 acquisition of CNAA assets, ethanol mills in Minas Gerais and Goiás states, Brazil (operational)
(operational)
SLIDE 3 – US OPERATIONS In Jennings, Louisiana, we have a 1.4 million gallon demonstration facility. This oneof-a-kind unit is designed and built to enable the commercial-scale production of cellulosic biofuels. One of the main activities of this facility is to produce data and samples for further testing and scale-up decisions for future commercial operations. The facility currently employs 75 individuals in “green” jobs, including qualified engineers. While the Jennings facility was designed as a demonstration plant, we believe there is great potential for similar facilities to be developed over the next decade in the southern United States, as that region has the perfect climate for producing the cellulosic crops that we need. In addition to this demonstration unit, we have our global technology center in San Diego, along with other university-based research investments. We are also developing a 36-million gallon commercial-scale plant and 20,000 acre farm in Florida. Construction has begun on the farm and we expect to break ground on the industrial facility next year and we expect the facility construction to take approximately two years to complete. The facility will convert perennial grasses into cellulosic biofuels using BP’s proprietary biological fermentation technology. Some of the perennial grasses
5
utilized at the site include energy cane, high-biomass sorghum and other similar grasses. The cellulosic biofuels produced at this facility will dramatically reduce the greenhouse gases of our fuel transport system. The EPA has estimated that cellulosic biofuels produced using perennial energy grasses can achieve over a 60 percent reduction in greenhouse gases from conventional gasoline. During construction we will create about 600-800 jobs. When fully functional, the facility will employ roughly 140 people in “green” jobs with an additional 60 jobs being created through the agricultural activity. Spreading the benefits When we talk about industry scale and impact, it’s important to note that substantial areas of the US agricultural economy have not benefitted from the recent surge in corn ethanol production. This benefit has been primarily confined to the Midwest. BP Biofuels is partnering with farmers in the south and southeast to bring stability back to their agriculture business through the planting and management of energy crops. We are investing in local economies, creating rural employment and enhancing the local community tax base. The unique approach we are taking sees farmers maintaining control and ownership of their land. The role of government No talk about advanced biofuels is complete without a discussion of the role of government. While there has been much discussion around the level of government support for the industry, even more critical, in BP’s estimation, is stability and certainty in the existing government programs. This is vital to mitigating the risk associated with investing billions of dollars in an evolving technology. Investors and developers must see a secure market. Congressional support that is short, has uncertain timeframes or is continually evolving simply creates uncertainty which translates into financial risk. Policy change equals policy uncertainty, even when intentions are good. A stable framework to support the evolving industry will go a long way toward accelerating the industry and achieving national energy and environmental goals. We are fortunate that The Renewable Fuel Standard 2 (RFS2) is providing a longterm, stable framework for innovation and investment by mandating 36 billion gallons of renewable fuels by 2022. This framework must continue to include a set of transitional support mechanisms that bridge today’s nascent industry. These allow companies such as BP and other leading players the time and space to deliver at scale a cost efficient, sustainable solution for US transport energy needs.
6
Conclusion
Conclusion • Teams of scientists are focusing on game-changing technologies. • Feedstocks are being grown • Conversion technology is complete • Partnerships and new job opportunities are being made • Government policy is relatively stable • We are not waiting for others to lead.
SLIDE 4 – CONCLUSION SLIDE As I mentioned earlier, we believe the momentum behind cellulosic biofuels is now building rapidly. The feedstocks are being grown. The conversion technology is here today. The essential ingredient is a government policy that is stable and predictable from one Congress and one White House to the next. BP is a company that is prepared to play its part in creating this future. We have put our shareholders’ money and our own intellectual capital on the table. We are not waiting for others to lead the way. We are fully committed to this industry and we look forward to working alongside partners, industry, and governments to turn the promise of advanced biofuels into reality. Thank you.
7
Thanks very much for giving me this opportunity to share my perspective on the role that cellulosic biofuels can play in the energy future of the nation and the world. You heard my boss, Katrina Landis, mention Thomas Edison earlier. Well, one of Edison’s best friends was Henry Ford. Ford, of course, didn’t invent the automobile. Credit for that is usually given to Karl Benz. Ford’s genius lay in production the moving assembly line, the five-dollar day and quick-drying black paint helped convert the automobile from a “luxury good” to a mass consumer product. The real breakthroughs that transform the way we live are often like that. Steady, determined innovation, rather than “eureka” moments of invention. BP Biofuels aims to do for cellulosic biofuels what Henry Ford did for the automobile. We didn’t invent cellulosic biofuels, nor did we build the first pilot plant or the first demonstration unit. But BP will construct the first fully integrated commercial-scale cellulosic biofuels facility and begin to commercialize this industry at scale. In the brief time I have today, I want to do two things. First, tell you about why and how BP is investing in advantaged biofuels, and second, outline the necessary environment in terms of public policy that will help make a new era of biofuels a reality for America and the world. BP and biofuels BP is in biofuels because we are an integrated energy company and the world of energy is changing dramatically. Liquid hydrocarbons are a very useful and efficient means of storing and moving energy, particularly for transportation. That’s why, over the last century, wheeled vehicles worldwide overwhelmingly use gasoline and diesel fuel. Changing this will be very difficult, very expensive and very time-consuming. So substitutes for transport energy must be viable substitutes for oil, and this makes transport energy, as opposed to electricity, a global market. The International Energy Agency believes that the number of cars on the world’s roads is likely to double by 2030. The good news is that we don’t believe this leads to a doubling of oil demand – increasingly fuel efficient vehicles, including hybrids,
1
will lead to a decline in demand in the OECD economies, and mitigate demand growth in Asia and South America.
Biofuels: A Growing Market… Global biofuel penetration of gasoline/diesel demand 12
Volume (million barrels/day)
19% 10
consensus range
8
11%
6 4
Assumed limit of ‘first generation’ technologies
announced regulation
2 0 2005
2010
2015
2020
2025
2030
Source: McKinsey, BP analysis, IEA2007
SLIDE 1 – BIOFUELS VOLUME Biofuels can mitigate the demand by displacing some of the additional oil that would otherwise be required. In fact biofuels can be seen as the ‘new oil’ but unlike oil they are created from unlimited supplies of fresh biomass. Biofuels provide us with a “renewable well” and I often see a typical ethanol plant as a four to six thousand barrel a day well. Biofuels will play an increasing role in the energy mix and BP is responding to the opportunities these changes represent. But we’ve actually known this for some time which is why biofuels are not a “technology hedge” or a way of ensuring that we can comply with blending mandates but a focused and targeted business for BP.
2
Biofuels’ strategy is based on 3 strategic initiatives Sugarcane ethanol Brazil Advantaged molecules biobutanol Advanced technology lignocellulosics
Low-cost
Low-carbon Scalable Sustainable
SLIDE 2 – LOW COST LOW CARBON SLIDE Four criteria guide our investment in advantaged biofuels. First, they must be low-cost so that the biofuels we make can compete with oil without any subsidy by 2022. Second, biofuels must be low-carbon. We anticipate producing biofuels in the U.S. that meet the national goals of reducing the GHG levels in transport fuels by over 60 percent from current levels. Third, they must be scalable. As Henry Ford realized with automobiles, there is no point in making a boutique product. Only mass production and mass distribution can move the needle. Finally, biofuels must be sustainable. Environmentally sustainable, economically sustainable and socially sustainable. If a biofuels product can meet these four criteria, then it can truly be said to be an advanced biofuel worthy of a strategic investment by an integrated energy company. So far, these criteria have led us to three main strands of large-scale investment:
Producing biofuels from sugarcane in Brazil,
Developing advanced fuel molecules, such as biobutanol, which has a higher energy content than ethanol;
3
And finally, cellulosic biofuels from dedicated energy grasses grown in the southern United States.
Because of limited time, I will focus only on the last, though I will discuss the others in the Q&A if you have questions. Cellulosic biofuels technology is here Cellulosic biofuels technology sits in a sweet spot, and we believe that large scale commercialization is very close indeed. This technology will deliver on the promise of low-cost, low-carbon, scalable, and sustainable transport fuel. Simply put, no other biofuel has the potential to deliver the necessary volume at the low cost of cellulosic biofuels. Our product will be made from dedicated energy grasses, converted into fuel using proprietary technology that extracts sugars from the cellulose in the plant and converts it into liquid fuel. The energy grasses we will use are 10 to 15 feet tall perennial grasses that grow in warm climates and have a very high fiber or cellulose content – so they’re very high yielding. This combination of feedstocks and proprietary BP technology means cellulosic biofuels can deliver yields between four and five times that of corn ethanol on a per acre basis. And they can be grown on land that is not suited to growing food crops economically.
4
BP’s activity To make this vision a reality, BP is developing a very robust cellulosic biofuels business in the US.
BP’s biofuels investments Biofuels operations Supported institution BP-supported research institute
Butamax Advanced Biofuels head office Sugar-to-diesel research with DSM (ex-Martek)
Dedicated biofuels technology centre, San Diego (operating)
Cellulosic ethanol demonstration plant, Louisiana (operating)
Vercipia Biofuels Commercializing cellulosic ethanol, Florida
Vivergo Fuels (JV) world-scale wheatethanol plant, UK
Office location
(under construction)
Biobutanol technology demonstratio n plant, Hull UK (JV) (start-up phase)
(farm planting started)
Tropical BioEnergia Ethanol mill (JV)
2011 acquisition of CNAA assets, ethanol mills in Minas Gerais and Goiás states, Brazil (operational)
(operational)
SLIDE 3 – US OPERATIONS In Jennings, Louisiana, we have a 1.4 million gallon demonstration facility. This oneof-a-kind unit is designed and built to enable the commercial-scale production of cellulosic biofuels. One of the main activities of this facility is to produce data and samples for further testing and scale-up decisions for future commercial operations. The facility currently employs 75 individuals in “green” jobs, including qualified engineers. While the Jennings facility was designed as a demonstration plant, we believe there is great potential for similar facilities to be developed over the next decade in the southern United States, as that region has the perfect climate for producing the cellulosic crops that we need. In addition to this demonstration unit, we have our global technology center in San Diego, along with other university-based research investments. We are also developing a 36-million gallon commercial-scale plant and 20,000 acre farm in Florida. Construction has begun on the farm and we expect to break ground on the industrial facility next year and we expect the facility construction to take approximately two years to complete. The facility will convert perennial grasses into cellulosic biofuels using BP’s proprietary biological fermentation technology. Some of the perennial grasses
5
utilized at the site include energy cane, high-biomass sorghum and other similar grasses. The cellulosic biofuels produced at this facility will dramatically reduce the greenhouse gases of our fuel transport system. The EPA has estimated that cellulosic biofuels produced using perennial energy grasses can achieve over a 60 percent reduction in greenhouse gases from conventional gasoline. During construction we will create about 600-800 jobs. When fully functional, the facility will employ roughly 140 people in “green” jobs with an additional 60 jobs being created through the agricultural activity. Spreading the benefits When we talk about industry scale and impact, it’s important to note that substantial areas of the US agricultural economy have not benefitted from the recent surge in corn ethanol production. This benefit has been primarily confined to the Midwest. BP Biofuels is partnering with farmers in the south and southeast to bring stability back to their agriculture business through the planting and management of energy crops. We are investing in local economies, creating rural employment and enhancing the local community tax base. The unique approach we are taking sees farmers maintaining control and ownership of their land. The role of government No talk about advanced biofuels is complete without a discussion of the role of government. While there has been much discussion around the level of government support for the industry, even more critical, in BP’s estimation, is stability and certainty in the existing government programs. This is vital to mitigating the risk associated with investing billions of dollars in an evolving technology. Investors and developers must see a secure market. Congressional support that is short, has uncertain timeframes or is continually evolving simply creates uncertainty which translates into financial risk. Policy change equals policy uncertainty, even when intentions are good. A stable framework to support the evolving industry will go a long way toward accelerating the industry and achieving national energy and environmental goals. We are fortunate that The Renewable Fuel Standard 2 (RFS2) is providing a longterm, stable framework for innovation and investment by mandating 36 billion gallons of renewable fuels by 2022. This framework must continue to include a set of transitional support mechanisms that bridge today’s nascent industry. These allow companies such as BP and other leading players the time and space to deliver at scale a cost efficient, sustainable solution for US transport energy needs.
6
Conclusion
Conclusion • Teams of scientists are focusing on game-changing technologies. • Feedstocks are being grown • Conversion technology is complete • Partnerships and new job opportunities are being made • Government policy is relatively stable • We are not waiting for others to lead.
SLIDE 4 – CONCLUSION SLIDE As I mentioned earlier, we believe the momentum behind cellulosic biofuels is now building rapidly. The feedstocks are being grown. The conversion technology is here today. The essential ingredient is a government policy that is stable and predictable from one Congress and one White House to the next. BP is a company that is prepared to play its part in creating this future. We have put our shareholders’ money and our own intellectual capital on the table. We are not waiting for others to lead the way. We are fully committed to this industry and we look forward to working alongside partners, industry, and governments to turn the promise of advanced biofuels into reality. Thank you.
7
