Responsible Ethanol Goes Bankrupt

Last year I wrote a story about an ethanol company that was trying to produce ethanol in a more sustainable fashion:

E3 Biofuels: Responsible Ethanol

They had a great idea. Use corn to make ethanol, feed the byproducts to cattle, digest the manure to produce methane, and use that to fuel the boilers. Complicated? Yes, but definitely a more sustainable way of producing ethanol – if they could pull it off.

During the construction of the plant, I had some contacts who kept me in the loop with respect to what was going on. However, once they began the start-up, all news updates stopped. There was nothing new on their website. (The last time I checked was last week). I couldn’t get any further information from them. The lack of information gave me a feeling that things weren’t going according to plan.

Because things don’t always go according to plan, I was quick to correct people when they said that E3 Biofuels was getting a 5/1 or whatever outrageous energy return the proponent claimed. I don’t know how many times I had to point out that these were projections, and that the plant wasn’t even commissioned yet. Vinod Khosla said it often, as if the plant was up, running, and producing ethanol with a very high energy return. From his white paper “Is Ethanol Controversial?” (MS Word download):

E3 Biofuels achieves an energy balance for corn ethanol of approximately five, using the Argonne National Labs GREET model – a number higher than what many cite for cellulosic ethanol! I have seen plants at every point in the continuum form old energy inefficient plants to highly optimized plants. Most plants being built in California, and there are thirteen at last count, pick locations near cattle feedlots to save the energy of drying the byproduct distillers grain. This dramatically increases energy balance relative to gasoline above 2X. Start replacing other natural gas used in the process with methane from manure form the cattle as can be done in California, a simple process of installing digesters, and the energy balance again improves substantially. Add the conversion of the remaining leftovers from manure digesters, as E3 Biofuels has done, and you get close to a 5X.

Note that is wasn’t “E3 Biofuels is expected to achieve….” No, “E3 Biofuels achieves….” and they do it with a few simple tweaks. If only…..

OK, by now you are wondering if I am going somewhere with this. Yes, I am:

Mead ethanol plant filing bankruptcy

LINCOLN — An innovative “closed loop” ethanol plant at Mead, Neb., now in debt because of mechanical failures and financial losses, will close while the company seeks to reorganize under bankruptcy protection.

E3 BioFuels LLC and its holding company filed bankruptcy papers Friday in Kansas City, Kan., seeking protection from creditors who have not been paid while the plant struggled with start-up problems.

“It’s a temporary shutdown,” said E3 spokesman R. J. Wilson. “With the mechanical failures hampering us, it has made it difficult to be profitable.”

During the plant’s grand opening in June, it was hailed as a model for improving the environment and for fighting global warming.

This is exactly, EXACTLY why I caution against getting carried away with projections. This is exactly what I have been so critical of Vinod Khosla about. Projections don’t always come true. I can guarantee you that Khosla’s vision of 200 billion gallons of ethanol by 2030 isn’t going to happen. But he is testifying to congress that it can happen, and that is influencing our energy policies in the wrong direction.

I had high hopes for E3 Biofuels, but I was pretty frank when people wrote and asked the question of why more ethanol plants didn’t go the E3 route. Simple. It makes the plant more complex and more expensive, and it wasn’t a proven technology. And it still isn’t.

National Geographic Story

Update: This was a story originally posted in August of 2006 (Wow, that’s been the fastest year of my life), but E3 Biofuels has come up in discussion quite a few times lately. I am going to be traveling over the next 5 days with intermittent Internet access, so I thought I would bump this up top. Note that this story was prior to their plant startup.

Ah, and that solves a long-term mystery for me. I wondered why some people refer to me as an “oil industry analyst.” This must have been where that originated.

————————-

Last night I noticed some traffic being directed here from National Geographic. Being a curious sort, of course I followed the link back and found this story:

New Ethanol Plants to Be Fueled by Cow Manure

The story talks about the E3 Biofuels process that I blogged on previously.

This blog is mentioned in the article, and is listed under “SOURCES AND RELATED WEB SITES”. The Oil Drum is also mentioned in the article, as well as Vinod Khosla. Some relevant quotes from the article:

…With gas prices high and the future of world oil production uncertain, interest in alternative fuels is surging.

But ethanol, a fuel now widely used in Brazil, has been the subject of an often polarized debate in the U.S.

The controversy has been playing out recently both in science journals and on energy blog sites such as The Oil Drum.

Proponents like Silicon Valley venture capitalist Vinod Khosla argue that ethanol can replace gasoline, while opponents counter that not enough agricultural land exists to meet more than a fraction of the country’s energy needs.

…But another outspoken ethanol critic, oil industry analyst and blogger Robert Rapier, has endorsed the E3 Biofuels approach, calling it “responsible ethanol.”

National Geographic. How flippin’ sweet is that? Maybe CNN will come calling next.

National Geographic Story

Update: This was a story originally posted in August of 2006 (Wow, that’s been the fastest year of my life), but E3 Biofuels has come up in discussion quite a few times lately. I am going to be traveling over the next 5 days with intermittent Internet access, so I thought I would bump this up top. Note that this story was prior to their plant startup.

Ah, and that solves a long-term mystery for me. I wondered why some people refer to me as an “oil industry analyst.” This must have been where that originated.

————————-

Last night I noticed some traffic being directed here from National Geographic. Being a curious sort, of course I followed the link back and found this story:

New Ethanol Plants to Be Fueled by Cow Manure

The story talks about the E3 Biofuels process that I blogged on previously.

This blog is mentioned in the article, and is listed under “SOURCES AND RELATED WEB SITES”. The Oil Drum is also mentioned in the article, as well as Vinod Khosla. Some relevant quotes from the article:

…With gas prices high and the future of world oil production uncertain, interest in alternative fuels is surging.

But ethanol, a fuel now widely used in Brazil, has been the subject of an often polarized debate in the U.S.

The controversy has been playing out recently both in science journals and on energy blog sites such as The Oil Drum.

Proponents like Silicon Valley venture capitalist Vinod Khosla argue that ethanol can replace gasoline, while opponents counter that not enough agricultural land exists to meet more than a fraction of the country’s energy needs.

…But another outspoken ethanol critic, oil industry analyst and blogger Robert Rapier, has endorsed the E3 Biofuels approach, calling it “responsible ethanol.”

National Geographic. How flippin’ sweet is that? Maybe CNN will come calling next.

A Seamless Transition to a Post-Fossil Economy?

I am going to be covered up through the weekend, but there have been some good discussions down the page that I want to bump up as stand alone posts. One is a discussion of the situation in Venezuela, and whether the IOCs were/are exploiting the people there. I will pull bits of that up at some point, but it will take more time to extract the relevant portions.

But, following my most recent essay, reader Benjamin Cole made some comments that are worth bumping up for discussion. I won’t have time until after the weekend to address them in detail, but maybe other readers would like a crack. And maybe some will agree with his assessement. Below are the relevant comments, which I have edited only slightly for some minor errors.

On the subject of low inventories, he wrote:

You have to back in ethanol. It is added into gasoline supplies, but not counted. I think ethanol is now about 3 percent of US gasoline supplies. If so, that brings us into five-year average range right now. Soon, within two years, ethanol will make up 6 percent of US gasoline supplies.

I would also be suspicious of seasonal adjustment factors. It looks to me like they are out of whack.

That being said, US consumers, evidently, will buy all the gas they can use at under $4 a gallon, although high mpg cars are selling well. At more than $4, I think we see serious mood shift.

On the other hand, you really cannot blame consumers for being “rational.” Until recently, a gallon of gasoline was cheaper than at any time since the 1960s. We simply will not tax gasoline like we should.

On the subject of where we are heading from here, he writes:

By the way, according to the Energy Blog, E3 has their new generation, cattle dung and corn stalk fired ethanol plant up and running. Also, a 100 mgpd ethanol plant going in Georgia, which will use heat to convert wood chips into ethanol. No enzymes.

If world fossil oil production really rises to 95 mbd by 2012, we are going to have a glut. Small additional demands for liquid fuel from here on can probably be met through conservation and biofuels.

At more than $60 a barrel, we are seamlessly transitioning to a post-fossil economy, with cleaner air and less wealth being transferred to those bastas in OPEC. How is this bad?

I have several issues with those comments, which I will get to on Monday. Until then, I toss him into the ring.

I want to also reiterate, which I did to my critic on the Venezuelan essay, that I am always open to posting guest posts – even if I strongly disagree with your opinion. I may open up a can of whoop-ass (this is how someone at The Oil Drum characterized my style yesterday), but I am not going to muzzle anyone unless they are making personal attacks.

A Seamless Transition to a Post-Fossil Economy?

I am going to be covered up through the weekend, but there have been some good discussions down the page that I want to bump up as stand alone posts. One is a discussion of the situation in Venezuela, and whether the IOCs were/are exploiting the people there. I will pull bits of that up at some point, but it will take more time to extract the relevant portions.

But, following my most recent essay, reader Benjamin Cole made some comments that are worth bumping up for discussion. I won’t have time until after the weekend to address them in detail, but maybe other readers would like a crack. And maybe some will agree with his assessement. Below are the relevant comments, which I have edited only slightly for some minor errors.

On the subject of low inventories, he wrote:

You have to back in ethanol. It is added into gasoline supplies, but not counted. I think ethanol is now about 3 percent of US gasoline supplies. If so, that brings us into five-year average range right now. Soon, within two years, ethanol will make up 6 percent of US gasoline supplies.

I would also be suspicious of seasonal adjustment factors. It looks to me like they are out of whack.

That being said, US consumers, evidently, will buy all the gas they can use at under $4 a gallon, although high mpg cars are selling well. At more than $4, I think we see serious mood shift.

On the other hand, you really cannot blame consumers for being “rational.” Until recently, a gallon of gasoline was cheaper than at any time since the 1960s. We simply will not tax gasoline like we should.

On the subject of where we are heading from here, he writes:

By the way, according to the Energy Blog, E3 has their new generation, cattle dung and corn stalk fired ethanol plant up and running. Also, a 100 mgpd ethanol plant going in Georgia, which will use heat to convert wood chips into ethanol. No enzymes.

If world fossil oil production really rises to 95 mbd by 2012, we are going to have a glut. Small additional demands for liquid fuel from here on can probably be met through conservation and biofuels.

At more than $60 a barrel, we are seamlessly transitioning to a post-fossil economy, with cleaner air and less wealth being transferred to those bastas in OPEC. How is this bad?

I have several issues with those comments, which I will get to on Monday. Until then, I toss him into the ring.

I want to also reiterate, which I did to my critic on the Venezuelan essay, that I am always open to posting guest posts – even if I strongly disagree with your opinion. I may open up a can of whoop-ass (this is how someone at The Oil Drum characterized my style yesterday), but I am not going to muzzle anyone unless they are making personal attacks.

CAFE Loophole

The ethanol bubble has been bursting a bit lately. I don’t say that with glee, because I hate to see people lose money, especially when it was due largely to misleading claims. (I say that even though 95% of the hate mail I get comes from ethanol investors). I hope the end of the irrational exuberance we have seen in the ethanol market will lead to a more fact-based look at which technologies are needed to replace or supplement fossil fuels, and what technical challenges must be overcome before that happens.

There are certain things we can do to help ethanol along that I completely agree with. Because of the great potential, I think we need to heavily fund cellulosic ethanol research. I think we need to encourage the pursuit of closed-loop ethanol processes, like the one E3 Biofuels is building. I have no problem with making most vehicles flex-fuel. I do have a problem with requiring E85 pumps at some percentage of gas stations. We can’t even produce enough ethanol to roll out E10 nationwide, so why force gas stations to put in a lot of E85 infrastructure when we can’t possibly produce the E85 to justify the expense? I also have a problem with forcing oil companies to pay for the pumps. If ethanol producers insist on E85 pumps, they should be required to pay for their installation, since they are the ones who will primarily benefit from E85 sales.

While I support the production of more flex-fuel vehicles, the CAFE loophole for flex-fuel vehicles is appalling. The government regulates fuel efficiency in the U.S. with Corporate Average Fuel Efficiency, or CAFE standards. When the average fuel efficiency falls below a certain level for a car manufacturer, they must pay a penalty. This provides an incentive for auto makers to produce fuel-efficient vehicles.

However, there are a couple of loopholes that have limited the effectiveness of the standard. One is that light trucks have an exemption that allows them to get worse fuel efficiency without being penalized. Because SUVs are classified as light trucks, there is an incentive for the auto maker to produce SUVs. The good news is that the government recently passed legislation to close the loophole. The bad news is that it doesn’t take place until 2011, meaning we have 5 more years of gas-guzzling SUV sales to contend with.

While this loophole is being closed, another is being opened. Did you wonder why automakers have embraced E85? Have they suddenly gone “green”, and therefore E85 just seems like the right thing to do? No. By making flex-fuel vehicles, they are able to exploit another loophole in the standards. This loophole has recently been reported on in the press. Car and Driver was the first to bring this to my attention in Tech Stuff: Ethanol Promises. The article explains:

With fewer than 600 stations selling E85 fuel in 37 states, why have GM, Ford, and DaimlerChrysler been cranking out these flex-fuel vehicles by the millions?

The answer is the mandatory Corporate Average Fuel Economy (CAFE) standards. Federal law requires that the cars an automaker offers for sale average 27.5 mpg; light trucks must achieve 22.2 mpg. Failure to do so can result in substantial fines. However, relief is available to manufacturers that build E85 vehicles to encourage their production.

The irony here is that although E85 in fact gets poorer fuel economy than gasoline, for CAFE purposes, the government counts only the 15-percent gasoline content of E85. Not counting the ethanol, which is the other 85 percent, produces a seven-fold increase in E85 mpg. The official CAFE number for an E85 vehicle results from averaging the gas and the inflated E85 fuel-economy stats.

Consumer Reports recently weighed in with The Ethanol Myth. On the CAFE issue, they reported:

GM’s advertising says, “Energy independence? The answer may be growing in our own backyard,” and has coined the slogan “Live green, go yellow,” referring to the corn from which most U.S. ethanol is made. DaimlerChrysler, Ford, and GM have said that they plan to double production of FFVs and other biofuel vehicles to 2 million by 2010.

The FFV surge is being motivated by generous fuel-economy credits that auto-makers get for every FFV they build, even if it never runs on E85. This allows them to pump out more gas-guzzling large SUVs and pickups, which is resulting in the consumption of many times more gallons of gasoline than E85 now replaces.

With the loophole in place, their motto should be “Live green, go yellow, consume more fossil fuels.” By all means, build flex-fuel vehicles. But close this loophole, which may very well result in much higher gasoline consumption in the future.

CAFE Loophole

The ethanol bubble has been bursting a bit lately. I don’t say that with glee, because I hate to see people lose money, especially when it was due largely to misleading claims. (I say that even though 95% of the hate mail I get comes from ethanol investors). I hope the end of the irrational exuberance we have seen in the ethanol market will lead to a more fact-based look at which technologies are needed to replace or supplement fossil fuels, and what technical challenges must be overcome before that happens.

There are certain things we can do to help ethanol along that I completely agree with. Because of the great potential, I think we need to heavily fund cellulosic ethanol research. I think we need to encourage the pursuit of closed-loop ethanol processes, like the one E3 Biofuels is building. I have no problem with making most vehicles flex-fuel. I do have a problem with requiring E85 pumps at some percentage of gas stations. We can’t even produce enough ethanol to roll out E10 nationwide, so why force gas stations to put in a lot of E85 infrastructure when we can’t possibly produce the E85 to justify the expense? I also have a problem with forcing oil companies to pay for the pumps. If ethanol producers insist on E85 pumps, they should be required to pay for their installation, since they are the ones who will primarily benefit from E85 sales.

While I support the production of more flex-fuel vehicles, the CAFE loophole for flex-fuel vehicles is appalling. The government regulates fuel efficiency in the U.S. with Corporate Average Fuel Efficiency, or CAFE standards. When the average fuel efficiency falls below a certain level for a car manufacturer, they must pay a penalty. This provides an incentive for auto makers to produce fuel-efficient vehicles.

However, there are a couple of loopholes that have limited the effectiveness of the standard. One is that light trucks have an exemption that allows them to get worse fuel efficiency without being penalized. Because SUVs are classified as light trucks, there is an incentive for the auto maker to produce SUVs. The good news is that the government recently passed legislation to close the loophole. The bad news is that it doesn’t take place until 2011, meaning we have 5 more years of gas-guzzling SUV sales to contend with.

While this loophole is being closed, another is being opened. Did you wonder why automakers have embraced E85? Have they suddenly gone “green”, and therefore E85 just seems like the right thing to do? No. By making flex-fuel vehicles, they are able to exploit another loophole in the standards. This loophole has recently been reported on in the press. Car and Driver was the first to bring this to my attention in Tech Stuff: Ethanol Promises. The article explains:

With fewer than 600 stations selling E85 fuel in 37 states, why have GM, Ford, and DaimlerChrysler been cranking out these flex-fuel vehicles by the millions?

The answer is the mandatory Corporate Average Fuel Economy (CAFE) standards. Federal law requires that the cars an automaker offers for sale average 27.5 mpg; light trucks must achieve 22.2 mpg. Failure to do so can result in substantial fines. However, relief is available to manufacturers that build E85 vehicles to encourage their production.

The irony here is that although E85 in fact gets poorer fuel economy than gasoline, for CAFE purposes, the government counts only the 15-percent gasoline content of E85. Not counting the ethanol, which is the other 85 percent, produces a seven-fold increase in E85 mpg. The official CAFE number for an E85 vehicle results from averaging the gas and the inflated E85 fuel-economy stats.

Consumer Reports recently weighed in with The Ethanol Myth. On the CAFE issue, they reported:

GM’s advertising says, “Energy independence? The answer may be growing in our own backyard,” and has coined the slogan “Live green, go yellow,” referring to the corn from which most U.S. ethanol is made. DaimlerChrysler, Ford, and GM have said that they plan to double production of FFVs and other biofuel vehicles to 2 million by 2010.

The FFV surge is being motivated by generous fuel-economy credits that auto-makers get for every FFV they build, even if it never runs on E85. This allows them to pump out more gas-guzzling large SUVs and pickups, which is resulting in the consumption of many times more gallons of gasoline than E85 now replaces.

With the loophole in place, their motto should be “Live green, go yellow, consume more fossil fuels.” By all means, build flex-fuel vehicles. But close this loophole, which may very well result in much higher gasoline consumption in the future.

Integrated Bioenergy Center

Believe it or not, I was working on this post before I got massively distracted by the efficiency questions surrounding ethanol and gasoline. To some, I may seem to be a bit of a Jeckyll and Hyde with respect to ethanol. One day, I am bashing it. The next day, I am endorsing it. So what’s the deal?

I fully acknowledge the need to move away from fossil fuels, but most grain ethanol in this country is primarily recycled fossil fuels. I object to taking fossil fuels, converting them to ethanol, subsidizing the ethanol not on the basis of energy “created”, but instead on a per gallon basis, while mining our topsoil in the process.

However, ethanol does not have to be created in an unsustainable manner. I applaud ethanol producers who are trying to produce ethanol in a more sustainable manner. Previously, I wrote on E3 Biofuels efforts to create a closed-loop process, which they should be starting up soon. Last week I saw another headline that described an integrated bioenergy plant with a different twist from that of E3 Biofuels:

Bioenergy Effort Under Way

Some excerpts from the article:

An electric cooperative in southwest Kansas is reaching beyond coal to generate power.

Sunflower Electric Power Corp. announced plans Wednesday to create a first-of-its-kind “integrated bioenergy center” on a 10,000-acre site four miles south of Holcomb, plugging an expected meat-processing operation, dairy, ethanol plant and biodiesel plant into the co-op’s plans for its own expanding coal-fired energy center.

Together, the independent operations would work together to generate electricity, produce ethanol, feed livestock and otherwise help one another succeed — through reductions in water use, lessening of emissions and a host of other spin-offs previously unrealized in a single project anywhere.

“We’re trying to do something that’s never been done before,” said Scott Miller, a spokesman for the electric co-op.

The project would convert manure to methane, which could fuel an ethanol plant. Flue gas from the coal-fired electric plant could feed into an algae reactor, whose water could be drained for boiling in the power plant — steam drives the turbines that produce electricity — while the algae could be used to feed dairy cattle or help produce biodiesel fuel. (1)

This is the kind of alternative energy effort we should all advocate. Some will not be enthusiastic about the use of coal as an energy source, but in my opinion this is inevitable. Ethanol that is highly dependent upon natural gas will rise and fall with the price of fossil fuels. Ethanol that is dependent on coal will be more insulated from the volatility of other fossil fuels. Besides, since methane will be derived from the manure, the coal-demand will be much lower than for a conventional ethanol plant. And conventional ethanol plants are turning to coal as an energy source anyway. (2)

While the integrated bioenergy center is not a fully sustainable solution, it is a big step in that direction. And steps toward sustainability are steps I support.

References

1. “Bioenergy effort under way” Lawrence Journal-World, August 24, 2006.

2. “Carbon cloud over a green fuel” Christian Science Monitor, March 23, 2006.

Integrated Bioenergy Center

Believe it or not, I was working on this post before I got massively distracted by the efficiency questions surrounding ethanol and gasoline. To some, I may seem to be a bit of a Jeckyll and Hyde with respect to ethanol. One day, I am bashing it. The next day, I am endorsing it. So what’s the deal?

I fully acknowledge the need to move away from fossil fuels, but most grain ethanol in this country is primarily recycled fossil fuels. I object to taking fossil fuels, converting them to ethanol, subsidizing the ethanol not on the basis of energy “created”, but instead on a per gallon basis, while mining our topsoil in the process.

However, ethanol does not have to be created in an unsustainable manner. I applaud ethanol producers who are trying to produce ethanol in a more sustainable manner. Previously, I wrote on E3 Biofuels efforts to create a closed-loop process, which they should be starting up soon. Last week I saw another headline that described an integrated bioenergy plant with a different twist from that of E3 Biofuels:

Bioenergy Effort Under Way

Some excerpts from the article:

An electric cooperative in southwest Kansas is reaching beyond coal to generate power.

Sunflower Electric Power Corp. announced plans Wednesday to create a first-of-its-kind “integrated bioenergy center” on a 10,000-acre site four miles south of Holcomb, plugging an expected meat-processing operation, dairy, ethanol plant and biodiesel plant into the co-op’s plans for its own expanding coal-fired energy center.

Together, the independent operations would work together to generate electricity, produce ethanol, feed livestock and otherwise help one another succeed — through reductions in water use, lessening of emissions and a host of other spin-offs previously unrealized in a single project anywhere.

“We’re trying to do something that’s never been done before,” said Scott Miller, a spokesman for the electric co-op.

The project would convert manure to methane, which could fuel an ethanol plant. Flue gas from the coal-fired electric plant could feed into an algae reactor, whose water could be drained for boiling in the power plant — steam drives the turbines that produce electricity — while the algae could be used to feed dairy cattle or help produce biodiesel fuel. (1)

This is the kind of alternative energy effort we should all advocate. Some will not be enthusiastic about the use of coal as an energy source, but in my opinion this is inevitable. Ethanol that is highly dependent upon natural gas will rise and fall with the price of fossil fuels. Ethanol that is dependent on coal will be more insulated from the volatility of other fossil fuels. Besides, since methane will be derived from the manure, the coal-demand will be much lower than for a conventional ethanol plant. And conventional ethanol plants are turning to coal as an energy source anyway. (2)

While the integrated bioenergy center is not a fully sustainable solution, it is a big step in that direction. And steps toward sustainability are steps I support.

References

1. “Bioenergy effort under way” Lawrence Journal-World, August 24, 2006.

2. “Carbon cloud over a green fuel” Christian Science Monitor, March 23, 2006.

National Geographic Story

Last night I noticed some traffic being directed here from National Geographic. Being a curious sort, of course I followed the link back and found this story:

New Ethanol Plants to Be Fueled by Cow Manure

The story talks about the E3 Biofuels process that I blogged on previously.

This blog is mentioned in the article, and is listed under “SOURCES AND RELATED WEB SITES”. The Oil Drum is also mentioned in the article, as well as Vinod Khosla. Some relevant quotes from the article:

…With gas prices high and the future of world oil production uncertain, interest in alternative fuels is surging.

But ethanol, a fuel now widely used in Brazil, has been the subject of an often polarized debate in the U.S.

The controversy has been playing out recently both in science journals and on energy blog sites such as The Oil Drum.

Proponents like Silicon Valley venture capitalist Vinod Khosla argue that ethanol can replace gasoline, while opponents counter that not enough agricultural land exists to meet more than a fraction of the country’s energy needs.

…But another outspoken ethanol critic, oil industry analyst and blogger Robert Rapier, has endorsed the E3 Biofuels approach, calling it “responsible ethanol.”

National Geographic. How flippin’ sweet is that? Maybe CNN will come calling next.