24th canadian conference on fats and oils hosts bioindustrial panel

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24th canadian conference on fats and oils hosts bioindustrial panel

24 TH CANADIAN CONFERENCE ON FATS AND OILS HOSTS

BIOINDUSTRIAL PANEL

Is the bioindustrial oils industry in dire straits, or is it the hope for the future The

future of lipid feedstocks for bioindustrial applications was the topic of a panel

discussion held during the 24 th Canadian Conference on Fats and Oils last September in

Edmonton, Alberta (Canada). Here is an abbreviated version of the discussion.

The future of lipid feedstocks for bioindustrial

applications

(moderated by Stan Blade, CEO of Alberta Innovates Bio

Solutions)

Remarks by Sevim Erhan, director of the US Department of

Agriculture, Eastern Regional Research Center

Let me begin by sharing some statistics. There are

many industrial uses for vegetable oils: inks, paints,

composites, surfactants, hydraulic fluids, lubricants, and

greases; but mainly what we are consuming right now is

biodiesel. Statistically, fats and oils production is increasing

worldwide. China is the #1 producer followed by Malaysia,

USA, EU countries and Indonesia, India, Argentina, and

Brazil.

Meanwhile, global fats and oil consumption is

increasing about 4%, mainly due to growth in China and

India. (EU countries consume a large amount, but they

import about 30-35%.) Consumption is led by soybean,

palm, and rapeseed, while production is led by soybean,

rapeseed, and cottonseed.

In 2010, soybean oil consumption was mainly for

edible applications. Now, only 14% is used for industrial

applications. This may seem low, but in 2004 only 4% was

used for industrial applications, so it has definitely

increased—primarily due to the use of biodiesel.

When we look at world crude oil reserves, North,

South, and Central America are high, and the Middle East is

leading, but due to political uncertainty in the Middle East,

it is difficult to predict how crude oil prices vs. vegetable

oil prices are going to be affected. As you know, soybean

prices recently reached $.50 (USD) per pound, which is

unheard of. Meanwhile, global chemical industry growth is

projected to be 3-6% per year through 2025, with the

biobased chemical market growing 2-22% and biobased

polymers growing up to 20%. This shift to biobased

products will be driven by the development of fuel

biorefineries and technologies that allow facilities to

process crude or vegetable oil, depending on price and

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availability. In the next 10 years, we think that grains will

be the primary feedstock for biobased products.

Where is the fats and oils industry headed That is

the million dollar question as we all know, but I think the

answer lies in the molecular biology and molecular

biological manipulation of plants to produce lipid structures

of interest.

Algae immediately comes to mind, but while algae

may be a credible source of customized lipids in the future,

it will be quite a while before algae will be ready to take

over. In the meantime, we need affordable conversion

technologies that allow us to adapt to fluctuations in crude

oil and vegetable oil prices. When we consider new crops,

we need to remember that farmers are very comfortable

with current crops. They know what equipment to use and

what to do. So, unless a new crop fits into that framework,

it may become a niche market but may not be widely

accepted. For this reason, engineered crops are more likely

to be used in the edible industry (eg. high oleic soy and

high oleic canola) than for industrial oils due to the high

demand in the edible oils at this time.

Better tracking of modified oils is needed, from

identity preservation, to segregation, to tracking

technologies. Soy and canola will lead this, because as

developing countries get wealthier and consume more meat,

we will need more animal feed and crops with a higher

protein value will be the value for the future.

Remarks by Ian Thomson, president of the Alberta

Biodiesel Association and the Chair of the Climate Change

and Sustainability Committee for the Canadian Renewable

Fuels Association

Where we’re headed as an industry, depending on

what source of news or perspective you want to look at, our

industry is in dire straits or it is the hope for the future, and

you can find perfectly credible data to support either of

those views. The one thing that the petroleum fossil fuels

markets have provided for lipids that is different from

traditional industrial or agricultural markets is that the room


for growth is massive. Which of course has invited

considerable concern when you start looking at diversion of

lipids from traditional markets into new markets.

So there is a lot of head room, but for those of us

who have spent time in the renewables world, you discover

quickly that the rules that the petroleum industry play by

are the rules of very large multinational organizations with

fabulous balance sheets and heavy profits, and that has a

huge impact on how a small nascent industry plays in that

world.

Looking ahead there is no question that feedstock

will still be king. I say that because with novel technologies

(and we’ve looked at novel technologies for different

conversion pathways and different fuels), if your feedstock

is more expensive than a fossil-based feedstock, you’re

going to need a push strategy and a lot of government

intervention.

We are already starting to see some backlash with

respect to promises that we have made about the time to

market for feedstocks and the time to market for new

technologies. On the whole, we tend to play down the

barriers that must be overcome to put things into

commercial use. That’s understandable in the short term

because it pulls investment money in and you can get

certain government programs, maybe some funding. What

you pay for is what the US renewable fuels industry is

paying for right now: pushback from the petroleum industry

saying that the renewable fuels industry has no right to hold

the petroleum industry to renewable fuel and advanced

biofuel standards when those fuels aren’t in the market yet.

I’ve had a number of people stare me down at

senior levels of government and say, “We gave you this

five years ago and you didn’t show up, so why should I

believe you this time around” So we need to be very

careful about what we promise.

The second generation technologies, which

certainly are what we’re looking to in the future, are

fabulously more capital intensive, sometimes up to 10 times

per installed gallon or liter than first generation, so that’s

going to be a factor. We’re not talking about tens of

millions for investment, we’re talking about hundreds of

millions of dollars for commercial-scale plants.

We are also going into an unlevel playing field

with petrol. We now have standards that require

sustainability criteria to be met for biofuels to go into a

market, but no such criteria exist for fossil fuels. And we

have just in the last year or two woken up as an industry

and said this represents apples and oranges and shouldn’t be

supported at a policy level.

What are the barriers to commercialization

Financing. Competing power trends in feedstocks. The

attraction of electric, pure, or hybrid-electric, mostly in

light and more on the gasoline side. Competing feedstocks.

Hydrogen will always be ten years away, but it’s out there.

Natural gas is now coming on. You see low prices and

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anticipated low prices in the future of natural gas. That will

be a competitive feedstock. Financing looks at that.

If we are not at the end, we are close to the end of

the wind-down of the stimulus spending which has

bolstered renewable fuels industries globally, and the higher

cost that will eventually land on the public wallet – we’re

going to get pushback on that and we’re already seeing that

in British Columbia right now, where the petroleum

industry is trying to renegotiate the low carbon fuel

standard on the premise that it’s more expensive for

consumers. It’s interesting that they have become

concerned about cost to consumers of fuels.

Market access is always going to be mediated by

government, and government is subject to political

persuasion. That can be a good or a bad thing depending on

which side of an outcome you end up on, but it’s always

risky, and financing hates political risk. It’s not something

that they can bundle up, equate, and put off to the side in a

model.

We will be increasingly vulnerable to cost. Those

sustainability standards add costs on our side that don’t

exist on the conventional side. So how do we get there,

wherever that future may be You have a global – well,

let’s talk about North American refining capacity. The rise

of ethanol in the United States is going to be increasingly

under capacity, so if you can use existing petrorefining

capacity by co-processing, where you’re doing a direct feed

of lipids into a hydro-treating for hydro-cracking process,

or you’re doing integrated biorefinery where you can put

the coproducts of the biobased stream back into the

biorefinery, those are not small considerations.

Heavy duty – diesel, distillate fuels, aviation

there is no substitute right now for aviation jet fuel. So for

the foreseeable future that will come from a liquid fuel.

You’ll hear a fair bit about the opportunity in sustainable

aviation fuels. I have seen a number of colleagues in my

industry set out with the best of intentions to make

renewable fuels, but when they get to planning and scale-up,

they decide to make chemicals instead. Quite

understandably, because they can sell them into commodity

markets and they’re much higher value.

We used to sell a methyl ester (the absolutely

identical methyl ester) into an industrial market for 30%

more than we could sell it into a fuel market. The view out

there is that the lowest possible use you could put to a

biobased material would be to sell it into a fuel that just

goes into the air.

We do need apples-to-apples kind of full cost

accounting for biobased materials. When the price of

carbon is so low and is not factored into accounting, we will

always be more expensive and it’s going to be a fight.

When we are told by regulators that we are going to

increasingly look to industry to be more economically selfsufficient,

we say that we look to government to set a price


on carbon, then we’ll talk about a conversation about being

able to compete in the market.

I don’t know how one goes about this, but I think

we need to think increasingly about future-proofing the

feedstocks that we create. If there’s one place that I think

we do need more work, it’s on feedstocks. They’re

technologies that will all of a sudden show up, but unless

we solve that feedstock issue, we’re always going to be on

the negative side of the cost equation of putting our

products into the market.

Remarks by Keith Jones, owner and president of FAME

Bioenergy

I am involved with a private company called

FAME Biorefinery Corporation that is attempting to move

from a single feedstock, single primary revenue product to a

multiple feedstock, multiple revenue product approach--

what you might define as a biorefining approach. We have

built a million liter a year pilot plant just outside of Airdrie

and have been conducting proof of concept tests of our

ability to use a range of feedstocks to produce a range of

different products. We’re now moving to the

commercialization phase in which we are raising

commercial financing for the first commercial plant.

Over the last 15 years there has been a stepforward

process as the industry shifts from its original focus

of producing a primary revenue product from a single

homogenous feedstock to what I would now call Stage Two:

using a variety of feedstocks to produce a single or primary

revenue product. While ten years ago, US industry

primarily focused on converting food grade soy oil to

biodiesels, a lot of US plants are now being retrofit to use a

broader variety of feedstocks and accommodate additional

industrial processes that provide them with flexibility on the

feedstock side. That’s part of the natural evolution in the

industry, and it has been accompanied by a similar shift by

the industry press from a focus on biofuels to a focus on

biorefining. Why Because everyone knows that the future

lies in multiple feedstock flexibility and deriving multiple

high value products from those feedstock opportunities. In

FAME’s case, we have a variety of different products that

we’ve completed proof-of-concept work on. The one we’re

currently excited about is back to the future. And I was

really excited last night to see the canola oil tasting at the

reception, because we’ve actually done quite a bit of that in

the last three months as we prepared to launch a new line of

cold pressed canola oil.

We’ve heard a little bit this morning about some of

the other biobased product opportunities that arise from

lipid conversions. One interesting opportunity we’re

developing is an osmoprotectant product we created using

the co-products from our biorefinery production. The

product helps regulate evapotranspiration in cereals. It

increases the efficiency with which wheat and barley crops

use water and can be applied as a foliar crop applicant.

One of the challenges in biorefining is that it

follows a petroleum refining model; the addition of product

streams and product revenue bases is incremental. So you

start by trying to convert a crude oil to a high-grade

gasoline distillate, but later discover that there are other

segmented product streams that can come out of that

feedstock base. In the biorefining industry, we’re trying to

jumpstart that process, and it’s a tricky thing to do.

FAME’s commercial business plan was based on

the assumption that in the first year of commercial plant

operation, 60% of the revenue would come from ASTM

biodiesel, but that over time, we’d start to see that revenue

portfolio diversify into the other product categories that

we’re now developing.

The advantages of biorefining include:

• Flexibility—the ability to use a variety of lipid

feedstocks—although differentiation in the

feedstock base will likely be more important to

the edible food industry than it will be to the

industrial products industry.

• Sustainability—creating value from multiple

product streams and turning streams that we

thought were wastes into important revenue

sources.

• Robustness—reducing market risk by producing

a variety of products.

• Knowledge intensity—the rich opportunity for

applied research, most of it focused on alternative

process and alternative products.

The challenges include:

• Complexity—multiple products mean multiple

sales and distribution strategies, and sometimes

efficiency tradeoffs.

• Sophistication—It requires very knowledgeable

investors and partners. Investors are more

comfortable buying into what they call a “pure

play.” They know how to evaluate a biodiesel

investment, but they have to struggle to

understand what a biorefining investment is.

Q & A

What will drive bioindustrial applications in the future

Thomson: When the economy goes south, the environment

gets in the back seat, but I don’t think that you’re going to

see the European Union backing off on carbon policies.

There might be some softening but they’re not going to

abandon them. In the US, energy security will be a huge

driver. One of the largest voices in renewable energy right

now is the Armed Forces, who’ve said that our reliance on

foreign oil is not just an energy security issue anymore; it’s

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a national security issue. The real negotiation is going to be

who pays for it. That’s where we get caught in the middle.

In Western Canada, we have energy security, but Eastern

Canada is very aware that most of its crude supply comes

from traditional foreign sources. So, the drivers may vary

by region.

Erhan: I personally think that the animal feed area will

grow quite a bit because of increased meat consumption in

developing countries. Base lipids will probably go that way.

I’m also guessing that in next 20 years big players like

ADM and Cargill will move from producing feedstocks

only to producing end products. That will drive the market

differently.

Jones: Clearly, it is the market that will drive the

development of the biobased products industry. The market

has already decided what things it is looking for, and

government’s role is to create a market for some of the

product categories. On the biofuels side, the

implementation of renewable fuel standards is creating that

market. For investors to get involved, for businesses to

operate, somebody has to buy the products. Some market or

consumer has to open a wallet or purse, pull out that hardearned

cash, and hand it across the table. So at the end of

the day, the markets will drive the opportunities in this

space.

Do you think people will open up their wallets

Jones: Given the concern about the economy overall,

there’s a reticence to embrace any opportunity that involves

higher cost, even if it does represent an environmentally

sustainable approach. That’s going to persist for the next

12-18 months at least. Having said that, there are pockets of

consumer interest and end-user interest that are very robust

and very durable. There are many municipalities that have

embraced a clean fuel standard and are going to use

renewable fuels because of their sense of corporate and

social responsibility and what it means for economic

sustainability in their communities. Interest in those kinds

of renewable products isn’t flagging in that particular

market segment.

Erhan: I agree completely and also think that if these new

affordable fractionation technologies come to market,

subgroups like greases may become affordable.

Thomson: Ditto, they’ve got to be affordable. In fact, they

have to be less expensive than the incumbent, because

they’re new. Eight years ago, biofuels were the darling.

Now they’re the skunk at the garden party. Those of us with

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enough grey hair will remember the big brick of a Motorola

phone that everyone was excited about that cost an arm and

a leg, and now we all carry smartphones. No one at the time

would have said we should jump straight to that; you have

to go through a progression. We need to tell the policy

makers and the public that if they don’t love the first

generation fuels that are available right now, that’s OK,

because we’re working hard at the next generation. But,

they have to be there to create markets. Because without a

first generation product you won’t have anything to put into

market, and without a market, you can’t build the second

generation. That’s the way the financing world works. They

won’t build until you give them a market.

What frustrates you in this area

Erhan: What frustrates me is that nobody is looking at the

full picture and everybody is looking at wherever their

interest is and then taking off in that direction. If we could

all just look at the whole picture from beginning to end, we

would see that we have to do something in each and every

step of it.

Jones: Right now the frustration our company and most of

the companies who operate in this space are experiencing is

that investor risk aversion is extraordinarily high right now.

So, while the story may be good and the vision attractive, if

an opportunity cannot generate this quarter or next quarter

results, you won’t see risk capital move into it like it might

have 4-5 years ago. Unfortunately, that situation is likely to

persist.

Thomson: My frustration is policy people who tell us that

we have to be competitive with $15 a ton carbon. Our

biggest enemy is probably ignorance and people who think

an inch deep and a mile wide and say things like, “well,

your stuff is more expensive.” We have costs other folks

don’t have, so people need to think more holistically over

time. They need to think more of where we are on a

continuum, not whether this is good or bad here and now.

How will you deal with sustainability issues over time

Is that something that’s going to go away

Thomson: No. As long as the world is short on water, as

long as the world is short on sugars, as long as the world is

short on any of the inputs—except carbon dioxide--we’re

going to have issues around sustainability.

Jones: One of the real opportunities as the industry evolves

to this biorefining approach is the creation of alternative


products from what were formerly waste streams. There are

lots and lots of examples of that. You’re starting to see

some real breakthrough technology developments—in

crude glycerin, for example. Crude glycerin use is in a

variety of alternative forms. So that is really bolstering the

sustainability of the bio-based products industry.

Erhan: I agree. I think the bioproduct and the coproduct

area is the area to focus on at the moment. But, to answer

your question: Yes, the environmental mandates are going

to be there, and we have to meet them whether they are

realistic or not. On the other hand, special edible oils cannot

compete with industrial oils on price, so that is where this

coproduct/bioproduct comes in. Feedstock development

will continue. Algae may produce some that are unique, but

water is ultimately going to be a major problem with it.

To what extent, if any, is the petrochemical industry

investing in this area If they’re not, why aren’t they

And is the petrochemical industry an obstacle to further

development

Jones: There’s been pretty limited investment by the direct

refiners, but there have been some ancillary investments

from companies downstream in the process. We’re starting

to see some fuel blenders make investments in this space.

There have certainly been investments from the feedstock

supply chain in biorefining capacity, but it looks like the

petroleum companies are waiting to see who blinks with

respect to the creation of government mandates. It remains

to be seen whether the industry will be able to serve those

mandates or if the government will stick to its guns and

enforce the penalties associated with noncompliance with

the renewable fuel standards.

Thomson: The challenge is a bit like telecom. When you

own all of the broadband and you own all the infrastructure,

you have to be told by the government to put in an

alternative. So, their investment has been very limited—

notwithstanding those $500 million investments. For a

petroleum company, that’s a third of a day’s profits, so

those are relatively very small investments. Until they can

use their own refining capacity and own the feedstocks,

they will see renewable fuels as more threat than

opportunity.

As we know, when bioproducts rose up, suddenly prices

of wheat, corn, vegetable oil went up, and with it, the

cost of food. Many European countries have to import

oils because government subsidies transfer them into

biofuel, not into the food market. How we can deal with

that

Thomson: I’m going to be overseas next week with the

International Standards Organization, and we’ve just put

out a draft report on food security. The draft report will say

essentially that there are multiple mediating factors that

play a role, and certainly biofuels have an impact on food.

The flip side of that is that the largest single driver of food

prices is petroleum: the cost of energy. If you look at the

United States right now, upwards of 12-15% of gasoline

now is ethanol. If you remove that ethanol, the cost of a

barrel of oil would go up substantially and have a knock-on

effect on the cost of food. So the two are intertwined, and it

is simplistic to say that more biofuels equals higher food

costs and is therefore bad. The interplay is complex. It

depends on the food. It depends on the region. Biofuels can

be an economic development opportunity for some people.

It depends on the feedstock—whether it’s gasoline or diesel,

and whether it’s at an $80 barrel or $120 barrel. The

single largest threat to food security – and I think most

people will agree on this – is climate change. It will

decimate that middle belt globally in productivity, so what

are we doing about it There’s going to have to be some

tradeoffs. We may be using more biofuels than we really

ought to – possibly – but they’re a stepping stone to secondgeneration

non-food biofuels that will have great carbon

offsets and are a longer term solution.

Erhan: If there are modified oils, they’re going to be for

edible uses, not for non-edible. But I’m sure there’s going

to be some identity preservation, or some marking will be

done in the future. Perhaps alternative crops like winter

barley will be grown in the off season. But again, it’s very

hard to see which is going to affect what. Certainly the

edible oils are always going to be used for food

consumption as the statistics show, but there is a little bit of

room there for biofuel and especially for second-generation.

Jones: I’d like to quote the agricultural economist Bill Kerr,

who told me and a bunch of other undergrad aggie students:

“The best cure for high prices is high prices.” The response

to higher prices in the food complex is higher productivity.

You see more investment in technology; you see more

investment in application. Anybody who’s tracked the

growth of the canola industry over the last 15 years has

seen this in terms of both yield per acre and in terms of seed

oil content, in terms of robustness of production, in terms of

applications, the actual number of acres that the crop can

grow on based on the modification to the genetic profile,

and the variety of different cultivars and varieties that are

available to farmers in the marketplace. So, irrespective of

where the market prices come from, I have incredible

confidence in global farmers’ ability to rise to that

challenge, and we are going to see that happen. We’re

already starting to see it happen. Irrespective of where you

point the finger as to the reason for the higher prices,

whether it is rising petroleum costs – could be; whether it is

biofuels – could be; whether it is increasing consumer

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demand for a range of food products, not single source

types of product, proteins, starches and fats – could be;

whether it’s speculators in the market and hedge funds

adding commodities to their portfolio to bolster their

investment diversification. Irrespective of where the higher

prices for these commodities come from, that’s going to

trigger a range of investment that’s ultimately going to push

those commodity prices back down.

The biofuel industry has been a way for producers of

commodities at the farm level to increase prices, to

establish local production, to keep their children in the

area. Would we really improve food security if we went

back to something that might be unsustainable for

producers

Jones: Biological cycles can’t be avoided, and fundamental

supply and demand cycles can’t be avoided either. Back

when canola was $6 a bushel, we had incredible interest at

the farm level for investing in and participating in and

partnering with us. Today, with canola prices at $12-13 a

bushel, the level of farmer interest has dramatically faded

because they no longer see the biorefinery approach as an

economic prerogative.

But, in five years’ time, the idea is going to reemerge,

and there are a number of farmers who already

understand that. I got a chance to ride the combine on my

brother’s farm this weekend. Looking over our shoulders

into that hopper and watching that black gold pour into the

hopper of the combine was pretty exciting. We will be

seeing gross revenues in the $700-800 an acre range this

year. But my brother said, “We gotta get that

biodiesel/biorefining operation going because this isn’t

going to last,” and I think most farmers understand that.

If I gave you a bucket of money to invest, where would

you place your bet

Erhan: I would put it into affordable conversion

technologies that would increase yields and be capable of

converting to different feedstocks.

Jones: What the consumer is willing to pay for dominates

our decision making, so I would say higher value, higher

volume products.

Thomson: I’d go after a US military contract for 15 years of

off-take, using first generation sustainable oilseed, but boy

you’d have to overcome the same folks who don’t want to

see softwood go in without pounding it. So politics. I don’t

think it’s the technology. I think it’s going to come down to

feedstocks and getting feedstock costs down.

~Transcripts prepared by Crystal Snyder, Inform editorial

advisory committee member and lab manager at the

University of Alberta, Canada

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