third and fourth generation biofuels...4 third- and fourth-generation market and industry analysis...

GTM RESEARCH JUNE 2010

THIRD AND FOURTH GENERATION BIOFUELS: TECHNOLOGIES, MARKETS AND ECONOMICS THROUGH 2015EXECUTIVE SUMMARY | JOSHUA KAGAN | GTM RESEARCH


THIRD AND FOURTH GENERATION BIOFUELS 2COPYRIGHT 2010, GREENTECH MEDIA INC ALL RIGHTS RESERVED

1 EXECUTIVE SUMMARY 8

2 THIRD-GENERATION BIOFUELS – ALGAE BIOFUELS 132.1 Overview 132.2 Algae Biofuel Policy 142.3 Siting and Growth 16

2.3.1 Open Ponds 172.3.2 Photo-bioreactors 182.3.3 Heterotrophic (Fermentation) 20List of Leading Companies and Their Growth Methods 21

2.4 Harvesting, Drying, Dewatering 222.5 Extraction 252.6 Conversion Processes 262.7 Algae Biofuel Industry Overview 27

2.7.1 Algae Yields 292.7.2 Opportunities and Constraints for Algae Biofuels 30

2.8 Algae Biofuel Unit Economics 352.8.1 Co-Products 352.8.2 Costs 36

2.9 Algae Biofuels Market Forecasts and Applications 442.9.1 Global Production and Capacity Forecasts 2010-2022 452.9.2 Algae Biofuel Production By Region 482.9.3 Algae Market Segments 50

3 FOURTH-GENERATION BIOFUELS – DESIGNER AND SYNTHETIC “DROP-IN” FUELS 523.1 Overview and Policy Considerations 523.2 Advanced Bio-Chemical Conversion Methods – Designer Microbial Organisms 53

3.2.1 Advanced Bio-Chemical Ethanol Production 533.2.2 Biobutanol 563.2.3 Biochemical Drop-in Hydrocarbons 59

3.3 Advanced Thermo-Chemical Conversion Methods 633.3.1 Fischer-Tropsch, Gasification, and Pyrolysis 633.3.1.1 Introduction 633.3.1.2 Gasification 633.3.1.3 Pyrolysis 703.3.2 Hydroprocessing, Catalysts and Upgrading 73

3.4 Market Forecasts and Unit Economics 793.4.1 Fourth-Generation Bio-Chemical Production Economics and Market Forecasts 793.4.2 Fourth-Generation Thermo-Chemical Production Economics and Market Forecasts 81

4 THIRD- AND FOURTH-GENERATION MARKET AND INDUSTRY ANALYSIS 854.1 Global Liquid Transportation Market Overview 854.2 Biofuels’ Capacity to Displace Petroleum 91

4.2.1 First- and Second-Generation Biofuels – Ethanol and Biodiesel 914.2.2 Third-Generation Algae Biofuels 954.2.3 Fourth-Generation Biofuels 984.2.4 First, Second, Third, and Fourth Generation Biofuel Amalgamations and Applications 101

5 ADVANCED BIOFUEL RESOURCE GUIDE 1045.1 Advanced Biofuel Industry Associations 1045.2 Online Biofuel Resources 1055.3 Online Clean Technology Resources (with biofuel coverage) 107

TABLE OF CONTENTS



5.4 Relevant Biofuel Books 1085.5 Biofuel Magazines 1095.6 Relevant Government and NGO Resources 110

6 APPENDIX 1126.1 Next Generation Fuels 1126.2 Next Generation Processes 1136.3 Next Generation Feedstocks 1146.4 VC Investment in Second, Third, and Fourth Generation Biofuels 1156.5 Global VC Funding of Advanced Biofuels in 2009 1176.6 Advanced Biofuel Investments by Selected Oil Majors 117

7 PROFILES 118ALGENOL BIOFUELS 119AMYRIS BIOTECHNOLOGIES 120AURORA BIOFUELS 121CHOREN INDUSTRIES 122COBALT BIOFUELS 123GEVO 124JOULE BIOTECHNOLOGIES 125LS9 INC. 126ORIGIN OIL 128PETROALGAE 129QTEROS 130Rentech 131SAPPHIRE ENERGY 132SOLAZYME 133Solena Group 134SOLIX BIOFUELS 135Terrabon 136UOP 137VIRENT 138



Figure 1-1: Global Algae Biofuel Production vs. Capacity in Billions of Gallons in 2022 9Figure 1-2: Global Fourth-Generation Biofuel Production in BGY 2016-2022 10Figure 1-3: Biofuel Displacement of Petroleum in 2010, 2015, 2022 11Figure 1-4: Global Biofuel Wholesale Market Relative to Oil Prices 11Figure 1-5: Companies discussed in this report 12

Figure 2-1: Experimental Photo-Bioreactor 14Figure 2-2: 2010 Updated Renewable Fuel Standards per EISA 16Figure 2-3: Seambiotic Open Pond System in Israel 17Figure 2-4: Photo-bioreactor 18Figure 2-5: Diagram of PBR Systems 19Figure 2-6: Solazyme’s Algae Strains 20Figure 2-7: Fermentation Vat 21Figure 2-8: Algae Production Methods By Company 21Figure 2-9: Algae Biomass in its Wet State 22Figure 2-10: Example of Algal Centrifuge 23Figure 2-11: Example of Algae Harvest Process 24Figure 2-12: OriginOil’s Single-Step Extraction Process 25Figure 2-13: Downstream Pathways for Converting Algae into Fuel 26Figure 2-14: PetroSun’s 1100-Acre Algae Farm in Rio Hondo, TX 28Figure 2-15: Calculation of Yields for Naturally Occurring Algae in the American Southwest 30Figure 2-16: EPA Estimate of Algae Oil Yields in Photo-Bioreactor Growth System in Gallons per Acre per Year 30Figure 2-17: Graphic Representation of Algae’s Capacity to Displace 100% of Petroleum for Transportation 31Figure 2-18: Average Annual Sun Hours in United States - Contiguous 48 States 32Figure 2-19: U.S. CO

2 Emission Sources Tons per Year (courtesy 32

Figure 2-20: U.S. CO2 Emission Sources 1000 Tons in 2008 33

Figure 2-21: Water Consumption for Various Sectors in Southwest U.S. Compared to Evaporative Loss from Algae Biofuel via Open Pond Methods Million MGY 34Figure 2-22: Algae Co-Product Opportunities at Various Price Points 35Figure 2-23: Algae Lifecycle Steps 36Figure 2-24: Aggregate Algae Biofuel Cost Comparison via Any Growth Method 38Figure 2-25: Solix Biofuels PBR Total Levelized Production Cost in 2010 39Figure 2-26: Three Scenarios for PBRs Target Cost $/Gal in 2010 and 2020 40Figure 2-27: Solix Biofuels PBR Total Levelized Production Cost 20120 40Figure 2-28: Three Cases of Algae PBR Cost Reduction Trajectories to 2020 in $/gal on an

Equivalent Btu Basis with Retail Diesel Prices 41Figure 2-29: Breakdown of Capital and Operating Costs of Producing a Gallon of Algae Biofuels via Open Pond in 2009 42Figure 2-30: Three Scenarios for Algae Biofuels from Open Ponds Target Cost $/Gal in 2019 43Figure 2-31: Three Cases of Algae PBR Cost Reduction Trajectories to 2020 in $/gal on an

Equivalent Btu Basis with Retail Diesel Prices 44Figure 2-32: Global Algae Biofuels Production Capacity 2010-2015 in Millions of Gallons 45Figure 2-33: Global Algae Biofuels Production 2010-2015 in Millions of Gallons 46Figure 2-34: Global Algae Biofuel Production vs. Capacity 2016-2022 in Millions of Gallons 47Figure 2-35: Projected Regional Market-Shares of Algae Biofuel Industry 2015 and 2022 48

LIST OF FIGURES



Figure 2-36: Global Algae Biofuel Production Capacity 2022 in Millions of Gallons, MGY 49Figure 2-37: Global Algae Biofuel Production vs. Capacity 2022 in Millions of Gallons 49Figure 2-38: Projected Global Applications of Algae Biofuels 2022 50Figure 2-39: Algae Biofuel Displacement of Various Petroleum Products in 2022 51

Figure 3-1: Fourth-Generation Biofuels Loan Guarantees Under American Recovery and Reinvestment Act 52

Figure 3-2: Consolidate Bio-Processing vs. Second-Generation Cellulosic Ethanol 54Figure 3-3: Qteros “C3” Simultaneous Bio-Chemical Conversion Mechanism 55Figure 3-4: Levelized Cost per Gallon of CBP vs. Traditional Bio-Chem Second-Generation

Cellulosic Ethanol 55Figure 3-5: Comparison of Cobalt Continuous Fermentation vs. Other Processes 56Figure 3-6: Gevo Biobutanol Production Diagram 57Figure 3-7: Global Biobutanol Production vs. Capacity 2010-2015, MGY 58Figure 3-8: Cost Comparison Between Biobutanol and Gasoline at Commercial Scale 58Figure 3-9: LS9 Fermentation Process --- Results in Petroleum Hydrocarbons and Alternative Chemicals 60Figure 3-10: Terrabon’s “MixAlco” Conversion Technology 60Figure 3-11: Joule’s “Solar Converter” 61Figure 3-12: Global Fourth-Generation Drop-In Capacity via Bio-Chemical Methods in MGY 2010-2015 62Figure 3-13: Fourth-Generation Drop-In Production via Bio-Chemical Methods in MGY 2010-2015 63Figure 3-14: Gasification Process 64Figure 3-15: Rentech’s Gasification Process 65Figure 3-16: Solena Group Plasma Torches 66Figure 3-17: Choren Gasificaton Life-Cycle 67Figure 3-18: Global BTL Production via Gasification 2010-2015 in MGY 68Figure 3-19: Global BTL Production Capacity via Gasification 2010-2015 in MGY 69Figure 3-20: Estimated Current Conversion Costs for Thermo-Chemical Cellulosic Ethanol Facilities 70Figure 3-21: Schematic Diagram of Pyrolysis Process Linked with Gasification 70Figure 3-22: Pyrolysis Life-Cycle 71Figure 3-23: Global Pyrolysis Capacity 2010-2015 in MGY 72Figure 3-24: Global Pyrolysis Production 2010-2015 in MGY 72Figure 3-25: UOP’s “Ecofining” Upgrading Technology Process 74Figure 3-26: Selected Airline Tests Using Fourth-Generation Upgraded Biofuels 75Figure 3-27: NexBTL Synthetic Diesel Process Flow 76Figure 3-28: Global Capacity of Fourth-Generation Biofuels produced via Upgrading 2010-2015 in MGY 77Figure 3-29: Global Production of Fourth Generation Biofuels produced via Upgrading 2010-2015 in MGY 78Figure 3-30: Virent Energy’s Upgrading Technology 79Figure 3-31: Fourth Generation Bio-Chemical Processes Cost Comparison 80Figure 3-32: Global Fourth Generation Biofuel Production via Bio-Chemical Technologies in MGY 2010-2015 80Figure 3-33: Global Fourth Generation Biofuel Capacity via Bio-Chemical Technologies in MGY 2010-2015 81Figure 3-34: Fourth Generation Thermo-Chemical Levelized Cost Comparison in $/gal 82Figure 3-35: Global Fourth Generation Biofuel Production via Thermo-Chemical Technologies in MGY 2010-2015 83Figure 3-36: Global Fourth Generation Biofuel Capacity via Thermo-Chemical Technologies in MGY 2010-2015 83Figure 3-37: Global Fourth Generation Biofuel Production vs. Capacity in MGY 2010-2015 84



Figure 4-1: Energy and Oil Metrics and Equivalents in 2005 85Figure 4-2: Composition of Barrel of Oil in Gallons from U.S. Refineries 86Figure 4-3: Motor Gasoline, Diesel, and Jet Fuel’s Composition the Portion of Oil Used for

Transportation in 2010 87Figure 4-4: Oil Consumption by Product and Region, 2005, in Million Barrels Per Day Equivalency 88Figure 4-5: Oil Consumption by Product and Region, 2005, as a Percentage of Total Consumption 88Figure 4-6: Estimated Global Motor Gasoline, Diesel, and Jet Fuel’s Equivalence on Barrels and

Gallons Equivalence in 2010 89Figure 4-7: Historical Petroleum Consumption in Millions of Barrels per Day OECD vs. Non-OECD 90Figure 4-8: Projected Global Oil Demand Growth Based on Increase of 1.39% Per Year (Million Barrels Per Day) 2010-2015 90Figure 4-9: Various Global Petroleum Fuels Projections 2010-2015 and 2022 Assuming 42gal=1bbl 91Figure 4-10: Global First- and Second-Generation Ethanol Production 2010-2022 in BGY 92Figure 4-11: Total First- and Second-Generation Ethanol Displacement of Gasoline by % in 2010-2022 93Figure 4-12: Global Biodiesel Production by Region 2010-2022 in MGY 94Figure 4-13: Global Displacement of Petroleum Diesel by Biodiesel 2010-2022 95Figure 4-14: Global Algae Production vs. Capacity 2010-2015 in MGY 96Figure 4-15: Global Algae Production vs. Capacity 2010-2015 in MGY 97Figure 4-16: Projected Global Applications of Algae Biofuels 2022 97Figure 4-17: Algae Biofuel Displacement of Various Petroleum Products in 2022 98Figure 4-18: 2016-2022 Global Fourth-Generation Biofuel Production via Bio-Chemical Processes in MGY 99Figure 4-19: 2016-2022 Global Fourth-Generation Biofuel Production via Thermo-Chemical

Processes in MGY 100Figure 4-20: Global Jet Fuel, Diesel, and Gasoline Displacement by Fourth-Generation Biofuels in 2022 101Figure 4-21: Amalgamated Global Biofuel Production by Generation in BGY 2010-2022 102Figure 4-22: Global Displacement of Petroleum by Biofuels 2010-2022 in Billions of Gallons 102Figure 4-23: Biofuels’ Displacement of Specific Petroleum Fuel Types 2010-2022 103Figure 4-24: Total Global Wholesale Biofuel Market in $ Billions Based on Various Oil Price

Scenarios 2010-2022 103



ABOUT THE AUTHOR

Joshua Kagan

Joshua Kagan is an analyst with cleantech hedge fund/VC firm Atlas Capital Investments and a Fellow with the Prometheus Institute for Sustainable Development, where he conducts research on the transportation sector. Joshua also serves as an advisor to the Carbon War Room, consults with the Gerson Lehman Group, and serves as an at-large analyst with Greentech Media. He holds a master’s degree from the London School of Economics and a bachelor’s degree from Wesleyan University in Middletown, Connecticut.



1 EXECUTIVE SUMMARYIn December 2009, we published Biofuels 2010: Spotting the Next Wave to provide a comprehensive market analysis of the global biofuels market. That report focused primarily on first- and second-generation ethanol and biodiesel. While first- and second-generation biofuels account for more than 99% of current global biofuel production, a number of important technologies are on the brink of commercialization that produce “drop-in” fuels with the same chemical characteristics of petroleum. In creating this report, Third and Fourth Generation Biofuels: Technologies, Markets, and Economics Through 2015, we wanted to examine the key players, technologies, and market applications that will drive the adoption of advanced biofuels.

First- and second-generation biofuels like ethanol and biodiesel have a number of inherent limitations that make them less than ideal as a long-term replacement for petroleum. The primary feedstocks for first-gen ethanol (corn and sugarcane) and biodiesel (rapeseed, soybeans, and palm) are all food-based crops that compete for scarce cropland, fresh water, and fertilizers. These fuels cannot be used in unmodified engines above small blends and are not applicable to the jet fuel market. While U.S. policy has mandated that increasing amounts of corn ethanol be blended into the domestic gasoline supply (15 BGY by 2015), the U.S. already appropriates 30% of its corn supply to displace about 6% of its gasoline consumption. While the coming years will see the commercialization of second-generation “cellulosic ethanol,” the lack of dedicated E85 fuel pumps and Flex-Fuel Vehicles (FFVs) as well as the encroachment upon the E10 “blend wall,” the limited energy density of ethanol, and the lack of ethanol-specific pipelines illustrate the challenges in depending upon ethanol as a long-term petroleum mitigation strategy.

Given that 2 billion people in “Chindia” are currently undergoing their industrial revolutions, combined with global population increases of 80M per year and increases in standards of living for non-OECD populations, we forecast global petroleum consumption to more than offset gains in corporate mileage efficiency and electrification of a portion of the transportation fleet. Combined with the fact that supplies of easily accessible “light sweet” crude are declining and oil prices are back above $80/bbl, the national security, environmental, and economic consequences of global dependence upon petroleum as a primary energy source is again at the forefront of policy discussions. The question of whether third- and fourth-generation biofuels are potential solutions is the basis of this inquiry. Some of the questions that this report attempts to answer include:

» What are the different types of advanced biofuels and which of them are relevant?

» What are the key technological pathways and what are their scale-up trajectories?

» Will advanced biofuels be price-competitive with petroleum without subsidies? If so, when?

» What are the short-, medium-, and long-term economics of algae, metabolically enhanced biofuel, and synthetic biofuels? Will any of these technologies ever displace significant volumes of liquid petroleum products?



This report is derived from conversations with more than 20 companies, as well as leading VCs, policymakers, and leading scientists in both academia and the private sector. Our interest in third-generation algae is driven by its superior yields (1,500-8,000 gal/acre/yr), ability to grow on marginal (non-crop) land, thus circumventing the “food vs. fuel debate,” capacity to thrive in brackish and/or saline water, and potential to recycle carbon from industrial power plants and remediate wastewater. Our discussions with leading algae companies like Solazyme, Solix, Sapphire Energy, Aurora, Algenol, Algae Systems, and Live Fuels suggest that the near-term economics will be driven by co-products and co-services while long-term cost improvements will occur as the steps of growth, harvesting, de-watering, drying, and oil extraction are consolidated. We believe that as oil prices increase, algae biofuels will achieve cost parity with petroleum in 2017/2018, resulting in 5.6 billion gallons of global production against 7.2 BGY of nameplate capacity in 2022.

FIGURE 1-1: GLOBAL ALGAE BIOFUEL PRODUCTION VS. CAPACITY IN BILLIONS OF GALLONS IN 2022

Source: Prometheus Institute model

While no commercial algae projects are expected for several years, there are a handful of fourth-generation facilities producing commercial volumes of “drop-in” fuel today.

Most thermo-chemical processes like biomass-to-liquids (BTL) or upgrading via “hydroprocessing” are extensions of commercial gasification or downstream petroleum refinery processes. While the logistics and costs of producing renewable diesel, gasoline, and jet fuel are currently more expensive and complex than refining petroleum, high diesel



taxes in Europe combined with cap-and-trade and continent-wide biofuel mandates are some of the reasons why European companies like ENI, Galp, Neste Oil, and Choren have commercial facilities that are either operating or will begin operating in the near future.

Fourth-generation biochemical methods largely involve the metabolic engineering of organisms to secrete biobutanol, ethanol, or drop-in fuels. Given that biochemical methods are extensions of fermentation, great opportunities exist for companies to leverage idle ethanol plants and drive down capital costs. Companies like Amyris, Gevo, and LS9 are utilizing this strategy and we expect commercial-scale projects to come online within the next two years.

FIGURE 1-2: GLOBAL FOURTH-GENERATION BIOFUEL PRODUCTION IN BGY 2016-2022


In 2010, we forecast global fourth-generation drop-in fuel production of 170 MGY, scaling to 19 billion gallons in 2022. One of the reasons why we are sanguine about the prospects for fourth-generation biofuels is that drop-in fuels are the only realistic short- to medium-term alternative for airplanes and long-haul diesel trucks. The battery constraints in electric vehicles suggest that such vehicles are only applicable to passenger and fleet vehicles. As such, the aggressive targets of the U.S. Air Force and other industry-wide consortia suggest that drop-in fuels represent the long-term future of biofuels.

By 2022, third- and fourth-generation biofuels should account for 28% of the global 88.5 billion gallons of biofuel production. Whereas biofuels currently displace 4.3% of global



gasoline and 1.5% of global diesel consumption, we forecast that by 2022, biofuels will replace almost 9% of the global jet fuel market, 8.4% of gasoline, and 7.4% of diesel.

FIGURE 1-3: BIOFUEL DISPLACEMENT OF PETROLEUM IN 2010, 2015, 2022


If petroleum prices reach $250/bbl in 2022 --- as we believe is very likely --- 88 billion gallons of biofuel production will be a $567B industry. Combined, third- and fourth-generation biofuels will have a wholesale market value of $159B.

FIGURE 1-4: GLOBAL BIOFUEL WHOLESALE MARKET RELATIVE TO OIL PRICES




FIGURE 1-5: COMPANIES DISCUSSED IN THIS REPORT

A2BE Carbon Capture Diversified Energy OPX

Air New Zealand DuPont OriginOil

Algae Venture Systems Dynamic Fuels LLC PetroAlgae

Algenol Dynamotive Energy Petrobras

Altair Elevance Renewable Sciences Petrosun

Amyris Eni S.p.A Phyco Biosciences

Annellotech Ensyn Poet

Aquaflow Bionomics Envergent Poet Energy

Aurora Biofuels Exxon/Mobile Qteros

BARD Flambeau River Biofuels Range Fuels

Bell Bio-Energy Galp REII

Biofuel Systems Gas Technology Institute Rentech

Biofuels HK General Atomics SAIC

Bionavitas Gevo Sapphire

BioTfuel Green Biologics Seambiotic

Blue Marble Haldor Topsoe Shell

BlueFire Energy ICM Solazyme

Boeing Inventure Solena Group

BP Japan Airlines Solix

Butalco Joule Biotechnologies Stora Enso

Butamax Kai Bioenergy Swift Fuel

Caitlin Kelco Synthetic Genomics

Carbon Capture Corp. Kent BioEnergy Syntroleum

Cellena KL Energy Terrabon

Chemrec KLM Texas Clean Fuels

Choren Kumho Petrochemical Tyson Foods

ClearFuels Live Fuels UOP

Cobalt LS9 Valcent

ConocoPhillips Martek Valero

Continental Airlines Mascoma Vercipia

Coskata Neste Oil XL Renewables

Cyanotech NSE Biofuels Zeachem

Source: GTM Research



CONTACT INFORMATION

Tate Ishimuro Sales Associate 415-777-9917 [email protected]

third and fourth generation biofuels...4 third- and fourth-generation market and industry analysis...

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