Mike Sticklen and Doug Rivers, Lee Enterprises Consulting
Mar 20, 2023
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The US ethanol industry is faced with flat volume (Fig. 1) and mediocre returns on capital (Fig. 2). There are several strategic opportunities available to return to revenue growth and improve returns to shareholders.  The strategies can be grouped into three categories.
Fuel Ethanol carbon intensity reduction,
Product and market diversification
Feedstock diversification
1. Fuel Ethanol Carbon Intensity Reduction
 Despite the push for transportation electrification, the US Energy Information Agency (IEA) forecasts that market demand for liquid fuels will grow globally, especially demand for lower carbon intensity (CI, gCO2/MJ) liquid fuels such as ethanol, renewable diesel, renewable gasoline, and sustainable aviation fuel (see Fig. 3). Liquid fuel growth will predominate in Asia with the Americas and Europe remaining flat. This will create an opportunity for low cost, low carbon intensity ethanol producers in the US to continue increasing exports and grow domestically with higher ethanol blends such as E-15.  Both favorable CI and high-octane rating value should result in demand growth for bio-based fuels.
The recent confirmation by US-EPA regarding RVO blending obligations under the Renewable Fuel Standard (RFS) for the next 3-years, is basically flat for US corn ethanol at 15.25 billion gallons per year.
The US ethanol industry is capable of producing more than 17 billion gallons per year. The RFS has outlived its benefit to US society and should be abandoned and replaced by low-carbon fuel standards in multiple states. The recently passed Inflation Reduction Act has added production tax credit incentives of 2 cents per gallon for each CI point below 50 gCO2/MJ.
US and Brazil ethanol producers are well positioned to capitalize on the global growth provided their ethanol carbon intensity is reduced from the mid-50’s gCO2/MJ to low 10’s gCO2/MJ (see Fig. 4). More than 50% of the US ethanol industry has committed to achieve this via CO2 geological sequestration which generates value through 45Q tax credits and LCFS carbon credits.  Ethanol plants that are located near proposed CO2 pipelines are well positioned. The new CO2 pipelines are facing some pushback from some stakeholders due to perceived safety and land eminent domain concerns, however the pipelines will get built. There are both huge climate-change benefits and economic benefits to be gained. Ethanol plants that are located too far from the announced pipelines or local suitable geology will need to look to alternative carbon reduction solutions including energy efficiency improvements, renewable gas and renewable power generation and regenerative agriculture with their local corn suppliers.
2. Co-Product Diversification
Protein Feed Ingredients and Corn Oil
Market demand for protein will continue to grow at over 10% per year over the next decade (see Fig. 5). Ethanol plants are a potential protein factory combining the value of corn protein and yeast protein.  The animal feed industry is ready for enhanced corn fermentation protein separation technologies and animal protein feed markets for pet food, aquaculture, poultry, and swine are learning to optimize their feed rations with these ingredients.  Technologies such as Fluid Quip’s MSC™, ICM AST™, Harvesting Technology CoProMax™ and Marquis ProCap are being commercialized rapidly. Each of these process additions results in 20-50% corn oil yields improvements and with the outlook for higher renewable corn oil demand continuing to grow to support Renewable Diesel demand, continued strong DCO price and improved profitability.  Renewable diesel production will surpass biodiesel production in 2023.
The protein quality target needs to be greater than 50% as-sold content with yields of 3 to 4 pounds per bushel corn. The amino acid profile is important along with excellent quality and consistency. This will require a step-change for many ethanol plants in process control, process monitoring, Food-Safety Modernize Act(FMSA) compliance and good-manufacturing practices (GMP).   This will enable the new corn fermentation protein products to be sold at values equivalent to soybean meal and in some applications approaching corn gluten meal.  With the large increase in demand and value for soybean oil for renewable diesel feedstock, it remains to be seen how that will affect soybean meal coproduction and market value.
Ethanol to Sustainable Aviation Fuel.
The aviation fuel grand challenge alongside the demand from airline companies for sustainable aviation fuel (SAF) is creating a growth opportunity for ethanol.  SAF can be produced via several alternative technologies including hydro-processing of fats, oils and greases, biomass gasification/Fischer-Tropsch conversion and alcohol to SAF.  Alcohol to SAF can be from ethanol or higher alcohols like iso-butanol.
Higher alcohols including Gevo’s process have favorable conversion yields compared to ethanol. However, ethanol production cost, which accounts for about 80% of SAF total cost, levels the playing field.   The larger ethanol plants have sufficient capacity to provide capital economies of scale for the downstream conversion processes (see Fig. 6). Ethanol from corn starch or sugar will continue to provide superior SAF economics due to low feedstock costs and low carbon intensity provided ethanol plants continue forward with CI reduction commitments. Airlines seem to be interested in cellulosic ethanol pathways due to perceived sustainability advantages, however the reality is that ethanol from starch and sugars will provide competitive carbon reduction benefits at lower production cost.  Existing corn and sugar ethanol plants have 10-20% incremental capacity potential through debottlenecking and corn starch supply will continue to grow as a result of crop seed technology advances.  Starch production per acre of land will grow along with continually improving crop inputs which will reduce carbon intensity of row crops and ensure supply for both food and fuel.
Renewable Methanol
The newly created production tax credit for renewable or green hydrogen has incentivized an opportunity to combine the hydrogen with ethanol plant CO2 to produce renewable methanol. Global renewable methanol is forecasted to grow to over 8 million tons per year or 2.7 billion gallons per year by 2027. (see Fig. 7) With low-cost renewable hydrogen and clean biogenic CO2 from ethanol plants, this chemical or fuel is an alternative means to reduce ethanol carbon intensity while producing a valuable co-product.  The economics depend on continuously improving renewable hydrogen production cost and the traditional natural gas-based methanol production alternative.  The energy density of methanol as a transportation fuel is inferior to ethanol. (see Fig. 8) therefore renewable methanol use will be targeted at non-transportation sectors.
Renewable Natural Gas
Renewable natural gas (RNG) from ethanol plant syrup and corn fiber is starting to gain traction with companies like Verbio producing RNG at their Nevada, Iowa facility. RNG is produced via anerobic digestion of biomass including corn stover and syrup. It is cleaned-up and pumped into nearby natural gas pipelines. The RNG qualifies for low carbon fuel in California along with Advanced RFS credits.
Bio-based Plastics
Packaging producers and consumer products companies with extended producer responsibility (EPR) are beginning to drive growth in bio-based plastics with moderate growth of about 5% per year.  This is an emerging alternative to producing ethanol from sugar or starch. It remains to be seen whether consumers will be willing to pay a premium price for renewable plastics to justify investments.  Bio-based traditional plastics including polyethylene from ethanol and bio-ethylene and PLA and PHA from clean sugars are seeing some new growth. Clean sugar production on the front-end of dry-mill ethanol plants is being developed by Fluidquip Technologies at GPRE’s Shenandoah, Iowa ethanol plant. The sugar solutions will be cost competitive with corn wet-mill dextrose.
3. Feedstock Diversification
Biomass feedstocks for ethanol continue to have interest from potential investors.  While technology developers continue to strive for viable Generation 2 cellulosic ethanol processes with milder pre-treatment processes and improved cellulase enzymes, the underlying production economics compared to corn starch and sugar- based ethanol will continue to be unfavorable.  Unit capital and conversion cost per gallon will continue to be 2-3 times higher and delivered biomass cost will be around 70% corn price with inferior yield pretty much offsetting the price advantage.  Cellulosic plant scale will also be disadvantaged.  Cellulosic ethanol pathways have CI scores in the low 20’s gCO2/MJ and with fermentation CO2 capture can be negative.  Corn and sugar ethanol with CCUS, renewable power and crop input improvements can approach low 10’s gCO2/MJ. The incremental CI benefit of cellulosic feedstock will not offset the capital and production cost disadvantage.  Keep an eye on evolving technology from players like Clariant and Saffire Renewables/D3MAX, however don’t be in a hurry to invest in cellulosic feedstocks.
About Lee Enterprises Consulting: Founded in 1995, Lee Enterprises Consulting, Inc. has grown to become the world’s premier bioeconomy consulting group with over 150 bioenergy and biochemical experts worldwide.  The company has renowned experts primarily focused on biofuels, biomaterials, biochemicals, feedstocks, alternative proteins, and biotechnologies.