Deja vu all over again: As in '08, corn, ethanol surging, and China on the move

In 2008, we reported on the price-distorting entry of speculators into the ethanol and grain markets, a rising disconnect between ethanol and gasoline prices, and the rapid expansion of energy and food demand in China.

In late 2010, we see again the predatory entry of speculators into the grain markets, and a growing disconnect between ethanol and gasoline prices.

As for China? The country has passed the US in terms of overall energy demand and now leads the G20 in green investment.

Go-go China: LanzaTech signs with Henan Coal and Chinese Academy of Sciences for advanced biofuels demo plant

One signal investment? MOUs signed this week by LanzaTech with Henan Coal and Chemicals and the Chinese Academy of Sciences to build a demo and eventually, if successful, a full scale commercial facility based on coal derived synthesis gas.  Henan is the second-largest coal company in China, ranked by revenues.

The primary purpose of the collaboration is the production of ethanol fuels and chemical products through the integration of coal gasification and biological fermentation.

Also signed was a separate three way LOI regarding the establishment of a Bio Energy Research Centre for the development, pilot production and commercialization of the technology of “coal derived synthesis gas to ethanol fuels and chemicals”. The research centre, supported by multiple research institutes under CAS, will focus on developing important complimentary process technologies, like product separation, water conservation and process integration. The research centre will also focus on developing other high value added technology and products.

“This complements the Bao demo as it will show the extensibility of our technology to synthesis gas,” explains LanzaTech CEO Jennifer Holmgren, “not just steel mill waste gases. We have already shown we can convert biomass derived synthesis gas in the lab, but this will enable us to demonstrate this at a 300 TPA demo scale.”

“Henan has expertise converting coal derived synthesis gas to other fuels and chemicals using thermochemical approaches,” Holmgren continued. “This will enable us to do a  head to head comparison to understand which steps are best done biologically with our system vs which steps are best done thermochemically.   I think this will allow the industry to continue to leverage multiple approaches and pathways to continue to reduce the carbon and energy intensity of making liquid fuels and chemicals.”

As you said- these biological routes could provide some of the progress that conventional approaches have not over the past few years.

Ethanol disconnecting from gasoline: trouble ahead

In another echo from 2008, ethanol prices are disconnecting from gasoline. We know that, based on the BTUs, a price for ethanol at 70 percent of gasoline makes sense on the BTUs.  Now, we need to have an oxygenate in gasoline to reduce smog, so E5 gasoline isn’t really about ethanol, green jobs or energy security, its about breathing. So a parity price for ethanol, given that we are distributing the equivalent of a 10 percent supply, should be about a 15 percent discount to gasoline. Above that – danger!

According to Bloomberg: “[Ethanol] jumped 22 percent since the U.S. driving season began in May, rising above gas, which has fallen 6.5 percent in the same period…Denatured ethanol for September delivery, the benchmark contract, rose to $1.944 a gallon on the Chicago Board of Trade. Futures climbed 14 percent in August. October gasoline settled at $1.8891 a gallon on the New York Mercantile Exchange, down 8 percent this year.”

The crazy rally in corn

Again, from Bloomberg: “Ethanol may continue to rally as corn, a main feedstock for the fuel, rose to a 14-month high of $4.4675 a bushel today on speculation U.S. grain demand will increase after Russia halted exports amid its worst drought in half a century. ”

The Digest’s take

Look out for another wild ride in grain prices over the next 6 months, and that could mean crazy times for ethanol producers and corn ethanol-dependent countries like the US. While China has adopted a “slow-down-baby” approach to biofuels development since nixing corn ethanol in 2007-08, they are onto something with steel mill carbon dioxide.

Their thought: turn a pollution source – and a cost center – and turn it into a revenue source. LanzaTech’s technology may just prove the trick. Another sign that the BRIC countries – Brazil, Russia, India and China – may have the most at stake with advanced biofuels.

And, for sure, China is getting organized, and is determined to take US technologies to scale, while the US sleeps. As a Digest reader put it, in commenting on a recent report on Asian investment, “I’d like to echo the quote “Asia is more aggressive”. Not only in biofuels, but with solar as well. Even with hoards of funding an American company like Solasta can’t make it and has to sell out their IP to a Chinese company: