Navigant Research Blog

Audi’s Strategy to Enable Carbon-Neutral Driving

— February 16, 2014

Audi recently announced that results from testing of the company’s synthetic liquid fuels, or e-fuels, indicate that e-fuels perform significantly better than conventional fuel counterparts in conventional vehicle internal combustion engines.  The company subsequently announced that it will broaden its e-fuels initiative through its partnership with French biofuels company Global Bioenergies.  Audi’s e-fuels initiative is unique, as no other major automaker has pursued the development or distribution of gaseous or liquid fuels – carbon-neutral or not – for the transportation market.

Audi plans to produce e-gas and, through a partnership with Joule, e-diesel and e-ethanol.  The company also intends to produce e-gasoline through a partnership with Global Bioenergies.  The purpose of this initiative is to provide drivers of Audi vehicles with carbon-neutral driving options as a selling point for its gasoline, diesel, and/or compressed natural gas (CNG)-powered vehicles.  However, Audi drivers worldwide may be physically unable to fill up with the carbon-neutral synthetic fuels developed by Audi due to a lack of refueling stations.  The automaker will enable Audi drivers to indirectly contribute to increased amounts of carbon-neutral synthetic fuels into the overall fuel pool through what amounts to offsets.

Powered by E-Gas

An example of how Audi’s strategy works is its production of e-gas, the e-fuel closest to market.  E-gas is produced from the electrolysis of water, which produces hydrogen, which is then combined with waste CO2, producing methane as a synthetic natural gas substitute.  The e-gas production facility is powered by wind turbines and uses concentrated waste CO2 from a nearby biogas plant.  The production and consumption of e-gas using this system generates no new carbon emissions.  The e-gas is then piped into the greater natural gas network at the e-gas production facility in Werlte, Germany.

Early adopters of Audi’s forthcoming CNG- and gasoline-powered vehicle, the A3 G-Tron, will be able to buy quotas of e-gas upon purchasing the car.  This allows them, through an accounting process, to say their Audi is powered by the carbon-neutral e-gas produced at the plant.  This offset option will only be available to European customers though, as light duty CNG vehicles have failed to catch on outside of Europe primarily due to a scarcity of CNG refueling stations.

Outside of Europe, similar programs are expected to emerge alongside Audi’s development of liquid e-fuels.  The end markets for these fuels are significantly greater than those for e-gas, since the vast majority of vehicles worldwide are powered by liquid fuels.  However, these e-fuels are still far from reaching the market.  Actual implementation of Audi’s carbon-neutral strategy outside of Europe is therefore limited in the near term, barring a significant increase in CNG infrastructure options.   But the promise of Audi’s and its partners’ work on liquid e-fuels may significantly speed development and adoption of carbon-neutral fueling options, holding  significant implications for the vast majority of vehicles in use powered by conventional petroleum-based liquid fuels.

 

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.

 

Ethanol Growth Lies in Optimization, Not Mandates

— January 31, 2014

The last 2 years have been punishing for the ethanol industry.  In August 2012, the Environmental Protection Agency (EPA) and National Highway Transportation Safety Administration (NHTSA) revised the treatment of flex-fuel vehicles (FFVs) under CAFE standards so that manufacturers will no longer receive credit for FFV sales beginning in 2017 if they cannot provide data proving E85 (gasoline with up to 85% ethanol) use by the FFV.  Then, in November 2013, the EPA proposed a reduction of an estimated 3 billion gallons of biofuels blending quotas for 2014 under the Renewable Fuel Standard (RFS).  Additionally, while the EPA has approved the use of E15 (gasoline with up to 15% ethanol) in model year (MY) 2001 vehicles and newer, major automakers have been hesitant on the fuel, in some cases approving its use only in MY 2012 vehicles and/or newer.  As a result, there are few stations that supply E15.

All of these setbacks mean that the market for ethanol in the United States has peaked at 10% of retail gasoline consumption and has flatlined in recent years.  Additionally, Navigant Research forecasts in a forthcoming report, Biofuels for Transportation Markets, that retail gasoline consumption will fall before 2022 thanks to increasing fuel economy standards and interest in alternative fuel and light duty diesel vehicles.

Despite ethanol’s recent tribulations, though, there are opportunities for sustainable growth.

E30 = $

A report developed by researchers at Oak Ridge National Laboratory (ORNL) finds that the use of E30 (gasoline with up to 30% ethanol) can significantly improve vehicle efficiency in optimized engines, compared to a conventional internal combustion engine fueled with regular gasoline.  Efficiency gains are achieved through the high-octane properties of ethanol, which improve combustion, thus mitigating engine knocking and allowing for greater downsizing of the vehicle engine.

The findings are important because they identify an opportunity for ethanol to become an economic product for end consumers.  To date, E85 has failed to catch on in the United States because the fuel shows no significant improvement in reducing fuel costs due to the lower energy density of ethanol compared to that of straight gasoline.  While there are currently many FFVs on U.S. roads, on average FFV drivers rarely fill up with E85.  Reasons include a lack of available infrastructure and low driver awareness.  However, those reasons would evaporate if the cost of driving on E85 were significantly less than driving on E10.  If the latter were the case, E85 compatibility would be a more valuable selling point for automakers than it is now, consumers would be well aware of the cost savings, and demand for E85 would be robust and drive infrastructure development.

If it’s true that an ethanol blend above 10% can improve fuel efficiency given the right engine, then the cost savings to the end consumer will spur growth in a market that has stagnated.  Realizing this opportunity, though, requires significant buy-in from automakers that would have to develop the optimized engines and the assurance that fuel retailers will have the optimized blends available.  Those factors will likely require government support.

 

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.

 

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