Navigant Research Blog

Lufthansa Leads Biofuels Hunt

— May 6, 2014

Lufthansa announced last month that it has teamed up with U.S.-based Gevo to research the blending of alcohol-to-jet (ATJ) fuel with conventional kerosene for use in commercial flights.  While it’s not surprising that ATJ will be on the fast track for testing and ASTM approval for use in commercial operations, Lufthansa’s support of the ATJ biojet pathway demonstrates that it’s conducting an intensive search for a viable advanced biofuels conversion pathway.

Lufthansa is among the leading airlines that have sought partnerships with emerging companies at the vanguard of biofuels innovation.  On paper, the German carrier accounts for more than 40% of the biofuels purchased by commercial airlines since 2008.  It was the first commercial carrier to operate biofuels-powered flights, launching an initiative to fly more than 1,000 commercial flights between Hamburg and Frankfurt in 2011 powered by biofuels derived from jatropha, camelina, and animal fats.

Succumbed

In some respects, Lufthansa has become the canary in the aviation biofuels coal mine.  It abandoned the Hamburg-Frankfurt route in 2011, citing difficulty finding a sufficient volume of biofuels.  The move presaged a dramatic decline from 31,000 biofuels miles flown in 2012 by commercial carriers to just 3,000 in 2013.

Commercial Airline Biofuels Miles Flown by Flight Type, World Markets: 2008-2013

 

(Source: Navigant Research)

Among the industries actively seeking alternative liquid biofuels, the aviation sector has been one of the most aggressive in pursuing its sustainability goals.  While laudable, this significantly narrows the potential feedstock pool for an industry anxious to lower operating costs, hedge against future oil price spikes, and improve its carbon footprint.  The drop-off in biofuels miles flown reflects the challenge of pairing a low-cost conversion technology with an abundant and sustainable feedstock.

At least 75% of global biofuels production today is derived from just two feedstocks: cornstarch in the United States and sugarcane in Brazil.  The remaining share is produced from other food-based feedstocks like soy, canola, palm, and coarse grains converted to first-generation ethanol and biodiesel.  Despite a relative abundance, both ethanol and biodiesel lack key performance attributes of kerosene-based jet fuel, making them nonstarters for use in jet engines.

Just two fuel pathways are approved for commercial use in the aviation industry today.  The first, FT-SPK, is a gasification and catalytic process (Fischer-Tropsch) that was put into use by the Nazis during World War II and in South Africa under apartheid.  The second, HEFA (or Bio-SPK), involves hydrotreating oils derived from oil-bearing plants, animal fats, and used cooking grease.  This latter pathway has supplied nearly 100% of the fuel burned in the nearly 600,000 miles of biofuels-fueled flights that have occurred since 2008.

A disproportionate share of the biofuels consumed by airlines during this period has been produced from used cooking grease, a feedstock typically discarded as waste.  While produced in abundance in urban areas, the relative volume of used cooking grease represents just a drop in the bucket compared to the nearly 90 billion gallons of kerosene-based jet fuel consumed annually by commercial airlines and militaries around the world.  It was never the silver bullet envisioned by the aviation industry for offsetting petroleum use.

The Search Continues

While many commercial carriers remained focused on participating in demonstration flights and establishing commercial routes, Lufthansa refocused its efforts on scouring the globe for technologies with the potential to operate at an industrial scale.

In 2012, the airline inked a deal with Australia-based Algae.Tec to build a large facility in Europe based on a modular design that uses shipping containers.  Although the algae industry remains an outlier in the crowded advanced biofuels technology landscape, along the algae frontier, Algae.Tec is an even greater outlier with a potentially game-changing platform.

Lufthansa’s recent deal with Gevo to pursue ATJ offers the airline another potential pathway to industrial-scale biojet production based on fermentation.  With the lion’s share of global biorefinery infrastructure based on fermentation platforms, Gevo is pursuing a capital-light approach based on the retrofitting of existing conventional ethanol refineries.  Assuming ASTM approval of ATJ, Navigant Research’s recent Aviation and Marine Biofuels report projects that 180 million gallons of ATJ will be produced globally by 2024.

 

Boeing Bets on Green Diesel

— January 31, 2014

The race for aviation biofuels has accelerated in the last couple of years.  More than 1,500 individual flights at least partially powered by biofuels have occurred since Virgin Atlantic powered the first commercial jumbo jet in 2008 with a blend of conventional jet fuel and biofuel derived from babassu and coconut oil.  More than 30 commercial carriers have flown with a blend of biofuels over this period.  Most recently, Boeing announced it would pursue ASTM certification for use of renewable green diesel for use in commercial aviation.

Despite aviation biofuels’ broad appeal among key commercial and military stakeholders, limited production and high costs have remained challenging barriers to the 3% to 6% share of global jet fuel consumption that the International Air Transport Association (IATA) believes is achievable by 2020.

Derived from diverse resources like algae, camelina, jatropha, and used cooking oil, the current pool of aviation biofuels is shallow due in part to a lack of production capacity – at least as measured against prevailing expectations just half a decade ago.  This is why Boeing’s recent announcement to pursue green diesel certification could change the game.  For the aviation industry, certification would enable green diesel to be integrated into existing supply chains at a cost that is competitive with petroleum-based jet fuel.

Plenty of Capacity

More chemically similar to fossil-based diesel than conventional biodiesel, green (or renewable) diesel’s advantage over incumbent biofuels is its compatibility with existing infrastructure.  This means that it can be dropped into existing pipelines, storage tanks, and most importantly, existing engine hardware.  This avoids the substantial costs associated with building out additional infrastructure, which conventional biodiesel and ethanol require – a bottleneck that has stymied conventional biofuels’ penetration into the global fuels supply chain.

Another advantage of green diesel relative to other advanced biofuels is availability.  In 2013, though green diesel contributed to just 2.7% of the total gallons of biofuels produced worldwide, it made up more than 95% of the advanced biofuels pool.  A recent International Energy Agency (IEA) report called green diesel the most successful advanced biofuels pathway with respect to scaling up production capacity.  According to estimates compiled for Navigant Research’s Industrial Biorefineries report, there is currently more than 900 million gallons of green diesel production capacity deployed across the United States, Europe, and Singapore.

Just two pathways – Bio-SPK and FT-SPK – have achieved ASTM certification for use as jet fuel.  At their current stage of development, both pathways have proven to be prohibitively expensive to use on a commercial basis.  Alaska Air and Horizon paid $17 per gallon in 2011; the U.S. Navy, meanwhile, has paid between $20 and $65 per gallon for advanced biofuels used in various non-combat operations.  While it is important to note that these prices are for relatively small quantities used primarily for testing, with green diesel’s wholesale cost in the range of $3 per gallon, it is currently available at price parity with petroleum-based jet fuel.  Jet-A wholesale costs are currently just under $3 per gallon.

Flight Path

Although ASTM approval for green diesel would be a boon for advanced biofuels and the aviation industry in the near term, the availability of sustainable feedstock to support a mature industry remains a hotly debated issue.

At best, green diesel certification provides a bridge to more scalable thermochemical conversion pathways for aviation biofuels: fuels derived from large-scale algae production, or more likely, the realization of industrial-scale non-food oil production from promising feedstocks like jatropha or camelina.  At worst, it buys the aviation industry a few more years to build on the difficult progress that has already been achieved.

While Boeing and commercial airlines are among the winners if green diesel certification goes through in the near term, refining stalwarts like Finland-based Neste Oil, Honeywell’s UOP, and Valero are also well-positioned to ride a surge in investor activity.

 

Bioports Emerge as Runway for Aviation Biofuels

— December 6, 2013

In spite of a mountain of uncertainty facing the biofuels industry, aviation biofuels continue to gain momentum.  Unlike the incumbent conventional biofuels industry, the entirety of the aviation value chain is readying for takeoff as the industry marches toward broad-scale commercialization.

Recent industry headlines demonstrate a high-level of coordination among stakeholders.

In sugarcane-rich Brazil, for example, bargain airline GOL Linhas Aereas Intelligentes recently announced a partnership with Boeing and Amyris, an emerging player in the advanced bio-based economy, to use sustainable aviation biofuel on 200 flights during the World Cup in 2014 and in 20% of flights during the Rio Olympics in 2016.  The partnership aims to speed the research, development, and approval of sustainable aviation biofuels using sugarcane as a primary feedstock.

GE Aviation, meanwhile, has signed an agreement to purchase synthetic biofuel derived from cellulosic biomass, natural gas, and water electrolysis-generated feedstock from the Washington, D.C.-based D’Arcinoff Group, for testing jet engines.

Fast-growing LanzaTech has moved aggressively to secure front-end partnerships with industrial producers in China and India, using flue gas from heavily polluting facilities like steel mills and fermenting it into chemicals and fuels.  Building on an aviation biofuels supply agreement with Virgin Atlantic, LanzaTech recently announced that it is ‘the first’ to have its jet biofuel certified by the independent Roundtable on Sustainable Biomass (RSB).

Bioports

Strategic partnerships across the aviation biofuels value chain highlight the range of pathways to commercialization that are being explored globally, but emerging business models seek to go one step further.

Aviation biofuel supply chain integrator companies like SkyNRG seek to condense the upstream, midstream, and downstream components of liquid fuel production into bioports, or regional production hubs.  The company pairs available feedstocks with appropriate conversion technology solutions at sites like Schiphol Airport and the Port of Rotterdam in the Netherlands and Brisbane Airport in Australia.

Similar to the microgrid model, which combines the generation, transmission, and distribution components of the electric power industry into a single site, bioports can operate independent of the broader petroleum market and supply dynamics.  This model has many advantages despite aviation biofuel contracts being astoundingly complex.  Solena Fuels, which has inked deals with 14 separate airlines, racked up nearly $1 million in legal fees to develop a first-of-kind contract to supply British Airways with aviation biofuel derived from municipal solid waste (MSW) at London Heathrow.  However, once such agreements are in place, they can be replicated with airlines around the world.  As one industry stakeholder commented, “Once you’ve worked with one airline, you’ve worked with them all.”

Corporations On Board

The current cost of aviation biofuels remains a further challenge.  Complementing its bioport approach, SkyNRG is leveraging corporate partnerships with Nike, Heineken, Philips, and others to help co-fund the development of sustainable jet fuel.  The corporate sponsors deliver much needed revenue for SkyNRG projects with airline partners while helping corporations achieve sustainability goals.  SkyNRG aims to enlist more than 100 corporations into its corporate travel program by the end of 2014.

This model takes advantage of concentrated demand and expanding integration of cleantech at airports worldwide.  Unlike ground transportation, there is no Tesla for the commercial aviation industry at the moment.  Higher oil prices and declining quality of aviation fuels due to a higher percentage of heavy oils point to increasing interest from commercial airlines and the airport operators serving them.  The emergence of supply chain integrators is a sign of a maturing industry poised for rapid growth.

 

Airlines, Governments Repel EU Aviation Emissions Plan

— January 16, 2013

Source: AirnationThe worldwide commercial aviation industry uses an estimated 70 billion gallons of fuel annually, producing roughly 2% of global greenhouse gas emissions.  Business-as-usual estimates for CO2 emissions from the global aviation industry projected by the International Energy Agency show increases of 3.1% per year over the next 40 years – resulting in a 300% increase in emissions by 2050.  However, the industry has taken significant strides in recent years to stabilize, and ultimately reduce, its contribution to global emissions.

Led by the International Civil Aviation Organization (ICAO), the commercial aviation industry has set two aspirational goals to guide policy: carbon-neutral growth by 2020 and a 50% reduction in industry emissions by 2050.  The integration of aviation biofuels derived from sustainable feedstocks like jatropha, camelina, municipal solid waste (MSW), and algae is a key component of achieving both goals.  Yet, national sovereignty and international agreements on the freedom of the skies are hampering efforts to impose a carbon tax that would encourage the integration of such fuels.

In an effort to compel airlines to implement emissions reduction measures, the EU rolled airline emissions into its Emission Trading Scheme (ETS) in 2008.  Originally scheduled to take effect in 2012, the market-based effort triggered direct opposition from the ICAO, which sought a global solution.  It also led the United States, China, India, Russia, Japan, and some Persian Gulf nations to threaten retaliatory trade measures.

In the United States, the aviation industry spent nearly $5 million in 2012 to support fierce political opposition, culminating in President Obama signing into law the European Union Emissions Trading Scheme Prohibition Act on November 27.  The bill gives the U.S. Transportation Secretary the power to shield U.S.-based carriers from the tax.  This effectively allows U.S. airlines to ignore the EU-imposed tax.

Blackmail, Black Market

Chinese and Indian airlines, meanwhile, refused to submit emissions data as part of the EU scheme.  China also threatened to withhold aircraft orders in excess of $3.8 billion from Airbus if the EU proceeded with the trading scheme.  The Indian government has been a staunch critic of the scheme, arguing that the EU plan would result in the formation of a black market for airline emissions credits.

Facing international pressure from major powers and key trade partners, the EU’s three most powerful members – Germany, the United Kingdom, and France – forced a 1-year postponement of the Airline Amendments to the ETS pending an anticipated agreement on a multilateral global alternative program.   The latter program is scheduled to be negotiated in the ICAO Assembly in 2013.

Although aviation’s contribution to global emissions is not overwhelming, the suspension of the ETS creates an environment of uncertainty around aviation biofuels, potentially stifling investment in drop-in conversion technologies that have yet to cross the commercial threshold.  Lack of long-term policy certainty has routinely been cited by industry sources as a key barrier to biorefinery construction and advanced biofuels scale-up.

Despite opposition to the EU plan, the U.S. government still strongly supports the development of aviation biofuels.  The Federal Aviation Administration (FAA) has called for the aviation industry to use 1 billion gallons of alternative jet fuel per year by 2018.  Moreover, the U.S. Department of Defense remains one of the most enthusiastic proponents of aviation biofuels.  Recent legislation passed by the U.S. Congress has signaled a commitment to public-private partnerships to build out domestic infrastructure for the production of advanced biofuels, including drop-in fuels compatible with existing commercial and military aircraft.

 

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