Bio-Isobutanol – Overview and Challenges
July 8, 2018
by Adam Schubert
On June 12th, 2018 the U.S. Environmental Protection Agency (EPA) announced that it had granted to Butamax Advanced Biofuels, LLC (Butamax) registration of blends of up to 16 volume percent (vol%) isobutanol in gasoline. Prior to granting this registration, EPA took the unusual step of seeking public comment due to, as EPA put it, the significant possibility that such isobutanol-gasoline blends had the potential for widespread use.
Butamax and its competitor, Gevo, have each spent well over a decade investing in the research, development, testing, and engineering required to bring bio-isobutanol to the U.S. gasoline market. The goal of these efforts was to apply recent advances in biotechnology to develop a new biofuel molecule which delivered the benefits of ethanol (renewability, low emissions, and high octane) while addressing its limitations (high vapor pressure, low energy content, water solubility, and corrosion).
Key efforts were also focused on production cost and scalability. These considerations directed the efforts toward molecules which could be produced via fermentation of sugars (such as those derived from corn starch, sugarcane and, potentially, cellulosics) as these are readily available in large quantities. This technology could be implemented via retrofit of existing ethanol plants, thereby mitigating the considerable time and cost which would be required to build the dozens of greenfield plants which would otherwise be required to materially supply the U.S. gasoline market.
To-date, Gevo has implemented their version of bio-isobutanol technology at commercial scale at an ethanol plant which they acquired in Luverne, MN. This plant has produced bio-isobutanol intermittently as Gevo sought to develop operating expertise, lower costs, and develop markets. Butamax has yet to commence commercial-scale production of bio-isobutanol. In April 2017, however, Butamax acquired an ethanol plant in Scandia, KS and announced that this plant would be the site of its first commercial implementation.
Butamax and Gevo were engaged in a lengthy litigation process concerning alleged patent infringement. All litigation was settled with the two firms entering into a global patent cross-licensing agreement with each other in August 2015.
The potential role of bio-isobutanol in the gasoline market, as is the case with all biofuels, is heavily influenced by the policy environment. Recognizing this reality, it is useful to consider how various stakeholders might look at the potential adoption of isobutanol-gasoline blends.
- Corn farmers are consistently looking for new markets as they steadily increase productivity. These farmers invested heavily in ethanol production in order to create a new market for their corn and to capture additional revenues through downstream integration. As bio-isobutanol can be blended with gasoline at a higher percentage, its use would provide an opportunity to increase corn demand.
- Ethanol producers have made substantial investments in their plants and find their current economics challenged as domestic fuel-grade ethanol demand has leveled while production capacity continues to increase. Market-balancing ethanol exports are subject to frequent changes in tariff and non-tariff barriers in key export markets. The production process for bio-isobutanol is very similar to the process for production of ethanol; this enables existing plants to be retrofitted for a fraction of their original capital investment. Accordingly, investment in bio-isobutanol production offers an opportunity to diversify into a (potentially) growing domestic market. The Renewable Fuels Association (RFA) provided EPA with comments supporting Butamax’s registration.
- Refiners seek to comply with regulatory obligations, at the lowest possible cost consistent with product quality requirements. Bio-isobutanol earns 1.3 RINs/gal (versus 1.0 RINs/gal for ethanol); thus, a 16% bio-isobutanol-gasoline blend (iBu16) earns double the RINs of a 10% ethanol blend (E10) while being compatible with existing vehicles and infrastructure and offering consumers the same fuel economy as E10. Additionally, the low RVP of isobutanol enables refiners to incorporate additional high-octane, low-cost butane in their blends. The higher blend percentage achievable with iBu16 and favorable distillation properties also provides the refiner with additional opportunities to optimize their refinery operations. Finally, the low water-solubility of isobutanol could enable refiners to blend it at the refinery and ship the resulting blend via pipelines, simplifying logistics relative to ethanol blending. BP, a co-owner of Butamax, provided EPA with comments supporting Butamax’s registration.
- Retailers with current dispensers would have to make no infrastructure adjustments in order to sell gasoline blended with isobutanol since Underwriters Laboratories (UL) has found iBu16 to be compatible with current-generation dispensing equipment. Additionally, since iBu16 offers the same consumer value as the corresponding E10 grade, retailers would not need to add additional tanks and dispensers to sell this blend. The National Associate of Convenience Stores (NACS) and the Society of Independent Gasoline Marketers of America (SIGMA) – trade groups representing fuel retailers and marketers – provided EPA with comments supporting Butamax’s registration.
- Automotive Original Equipment Manufacturers (OEMs) would not be affected significantly by the use of isobutanol in gasoline blends. Isobutanol has been found to be highly compatible with all the materials commonly used in automotive fuel systems. As iBu16 has the same oxygen content as E10 and favorable volatility, engines designed for E10 can readily switch to iBu16 with no adverse impact to performance or emissions. Automotive OEMs did not object when EPA solicited comments on Butamax’s proposed registration.
- Non-road OEMs have different designs for small and non-road engines; these have longer service lives and different operating environments than automotive engines. Accordingly, the OEMs for these engines have often been critical of ethanol, generally, and E15, specifically. The National Marine Manufacturers Association (NMMA) – the trade association representing the U.S. marine engine industry – has specifically endorsed iBu16 based on their own extensive testing. The American Motorcycle Association, a frequent critic of ethanol, provided supportive comments on Butamax’s proposed registration based on the similarities between marine and motorcycle engines.
- Consumers tend to be most concerned with fuel economy and compatibility. Unlike the partial waiver granted to E15, the waiver under which isobutanol was registered is applicable to all vehicles without any restrictions on use in non-road or heavy-duty applications. As iBu16 has the same energy content as E10, it delivers comparable fuel economy. Ultimately, however, the market determines whether a product can be offered to consumers at a competitive cost.
To-date, the limited production of bio-isobutanol has meant that penetration of the U.S. gasoline market has been limited to certain niches where consumers are willing to pay a premium price. These niche markets include marinas, retailers selling an “ethanol-free” grade, and packaged gasoline targeted for use in outdoor power equipment. Expanding bio-isobutanol usage beyond niche markets will require producers to overcome several challenges relating to regulatory requirements, production scale, and logistics.
- Regulatory Requirements
The EPA registration granted to Butamax is the most critical of the regulatory approval processes for a new fuel additive. Most other regulatory bodies look for this approval to be granted before they dedicate resources addressing other requirements. The fact that the standard gasoline specification (ASTM D4814) already encompasses isobutanol and ASTM has established a standard specification for fuel-grade butanol (ASTM D7862) also address key concerns. The UL guidance permitting the use of 16% isobutanol blends in current-technology dispensing equipment addresses a barrier that initially slowed E15 deployment.
Key remaining approvals are at the state level. These will need to be addressed one state at a time as market participants seek to introduce isobutanol-gasoline blends into commerce in a given state. Most states enforce their own fuel specifications. Some automatically adopt the current ASTM standards while others require the state department of weights and measures to formally adopt specifications. A few states require the legislature to approve any new specifications. Several states, particularly in the Midwest, have mandates or incentives for biofuels. In most instances, these requirements or incentives are specific for ethanol and biodiesel; therefore, they require amendment to either permit or incentivize use of isobutanol as an alternative to ethanol.
- Production Scale
Refiners and marketers choosing to blend ethanol in the U.S. gasoline market today can source product from nearly 200 plants utilizing variations of technology which have been in long-term commercial practice. The maturity of this technology results in highly reliable producers (typically 95% utilization of nameplate capacity). The number of competing suppliers tends to make pricing competitive. These multiple sources of supply coupled with significant levels of inventory (typically 20-25 days of U.S. production) held across the supply chain mitigates risk of product run-out should an individual ethanol plant have an unplanned outage.
Given that they are new players in the market, bio-isobutanol producers have yet to establish a track record of reliable production. The commercial challenge is to build such an operating history without ratable demand in the fuels market. Gevo has attempted to address this challenge through placement of their product in a multiplicity of smaller markets – niche gasoline, chemicals, and conversion to isooctane and jet fuel. Butamax may need to adopt a similar strategy to be able to sell their early production. Replication of the production technology across multiple plants will likely be required to provide the supply reliability required by the commodity gasoline market.
The network of refineries, pipelines, terminals and retail stations in the U.S. has become highly optimized for distribution of E10 blendstocks for oxygenate blending (BOBs) from refineries to terminals and E10 gasoline from terminals to retail stations. Most of this network is built around fungible transport and storage of E10 BOBs with ethanol blended at distribution terminals. While the distribution network has managed the introduction of new product grades, such as the transition from finished gasoline to E10 BOBs in response to the RFS, these transitions have historically occurred in large blocks of demand through a carefully-managed process involving all the relevant market participants. Further, the impetus for that change was a regulatory mandate.
The introduction of commodity isobutanol-gasoline blends, therefore, faces the challenge of entering this distribution network with small volumes of product, ramping up at a rate which will, initially, be difficult to forecast. Fortunately for the bio-isobutanol producer, this complex distribution network is not entirely fungible, and it also includes portions which are proprietary to single refineries. A granular analysis can identify opportunities where differently sized tranches of bio-isobutanol production can match demand; by working with potential customers, a producer can develop a roadmap to match-up market demand with a ramp-up in production capacity.
Contact us to discuss how bio-isobutanol could fit into your long-term plans.