In Oklahoma, the team behind the ENVIA Energy gas-to-liquids plant confirmed that the first Fischer-Tropsch product has been successfully produced at the company’s first commercial-scale plant in Oklahoma City.
What makes it special is that the source is landfill gas and waste biomass. It’s been used for some times for the CNG vehicle market — captured at the source, cleaned and compressed. The value of the feedstock has been known, and everyone knows where to find it, just follow your nose to the landfill. It’s not entirely like the problem of hard-to-unlock oil that we profiled in Fracking Biomass last week, here.
As with the advent of fracking, it has been a case of awaiting a technology that could feasibly unlock the higher energy values, trapped in landfills – and a remarkable partnership of Waste Management, NRG, Ventech and Velocys appears to have cracked it — fractionating landfill gas on site to produce paraffin wax, diesel and naphtha.
The magic
Fischer-Tropsch technology has been around for a long time. But it has only worked at massive scale — the FT projects around the world produce 30000 barrels per day or more and landfill simply isn’t aggregated at enough scale to support conventional F/T.
So the magic applied in this case has been Velocys microchannel GTL technology, which works economically at a scale that can support projects producing as little as 1500 barrels per day. And Ventech has engineered a pathway to standardized modular plants that are economic, easier to ship and faster to install, at lower risk, even in the most remote locations. In short, a solution that landfills can support — voila.
The special magic
One of the downsides of biomass is that it’s short on hydrogen. As we reported here, “you can never have enough hydrogen.”
Think of it this way. A carbohydrate like sugar — and that’s the energy battery inside biomass — looks like this: CnH2nOn. But a fuel molecule is CnH2n+2. So, you need a little extra hydrogen. That’s where landfills really begin to shine, because they have landfill gas as well as the aggregated source of waste biomass arriving at the site. That gas is methane — so, there’s a CH4 molecule going into the mix. When you heat it all up in a gasification and mixing process, think of this equation:
C6H12O6 + CH4 = C7H16 + O6.
That hydrocarbon has a fuel molecule’s carbon-to-hydrogen ratio.
A long time coming
The joint venture between Waste Management, Velocys, NRG Energy and Ventech was announced early in 2014 and the final investment decision was made in July 2014)to proceed with construction of the joint venture’s first plant, at the Waste Management’s East Oak landfill site in Oklahoma. Ground breaking took place in May 2015, and mechanical completion was expected in the first half of 2016 — and here we are in early 2017 with the first commercial project delivering its first fuels. Further optimization could be expected to last throughout 2017.
The economics
We suggested in this review here that projects using Velocys technology and obtaining feedstock from the landfill at market-rates are economic when oil prices are in the range of $50 – $70/barrel. According to Zeus Intelligence, with natural gas at $3.89/MMBtu, they can produce diesel for US$1.57 per gallon; that’s $65.94 per barrel. And landfill gas would come free, with only a cleaning and conditioning cost.
And, best news, the fuels produced at the plant are expected to qualify under the Renewable Fuels Standard and generate RINs — adding as much as $1.70 per gallon in value in the US< and another $0.80 or so in California owing to Low Carbon Fuel credits.
The yields
What we know from Velocys’ presentations on the subject of yield is that the yields range between 57 and 76 gallons per ton of waste biomass. Word came from the GreenSky project once planned in the UK that “approximately 575,000 tonnes per year of post-recycled waste, normally destined for landfill or incineration, will instead be converted into 120,000 tonnes of clean burning liquid fuels,” that’s around 57 gallons per ton.
On the high-end, we have this presentation in today’s Digest from Velocys on the GTL process economics and the pro-forma focuses on 1000 barrel per day yields (that’s 15.3 million gallons) from 200,000 tonnes of biomass, and that checks in at a 76 gallon per ton yield.
For now, let’s go with the higher figure, because we have intervening news from Velocys in recent months that “successful completion of pilot plant tests that demonstrate…a 50% increase in capacity, without changing the commercial catalyst formulation or the reactor design,” and this would support the boosted yields.
In addition, Velocys at the same time reported “a new start-up protocol enabling the pilot plant to reach target operating conditions in eight hours; a very significant improvement. As a result, this will improve further the economics of commercial plants and increase their availability.”
What about renewable jet fuel?
At $50–$70 per barrel and with RIN credits available — that’s a tasty target for jet fuel, and airline customers are more than eager to buy cost-competitive renewable. And, in the GreenSky project once planned for the UK, some 40% of the fuels were expected to be renewable kerosene (jet fuel).
So, why is there no mention of kerosene here? Probably it’s an unintended consequence of government policy in California. By creating LCFS credits with powerful value for diesel but not available for jet fuel (it simply isn’t covered under the California Low Carbon Fuel Standard), there’s far more value in making diesel than making jet fuel.
What about stranded natgas?
The technology works with stranded natural gas as well — and there are plenty of sites, say, in the Bakken, that are being sourced for liquids and the gas is being flared. Well, stranded gas may stay stranded a little longer. A few years ago, we had $2 gas and $90 oil. Now, we have $2 gas and $55 oil — enthusiasm has gone out of the GTL space because the crack spread has narrowed considerably.
Will biomass or natgas be the big winner?
It’s really not a case of fossil feedstock vs biofeedstocks, it’s all about advantaged feedstock. Smart investors will take a portfolio approach. As LanzaTech CEO Jennifer Holmgren says, “never fall in love with a feedstock”. 10 years ago, it was all about corn sugars and soybean oil. Then, cellulosic energy crops, then cellulosic residues. Then, the rage was for cheap Brazilian sugar. Then, along came algae, then it was advantaged natgas will save the world. Most recently it is “oil prices will be low, possibly for 10 years”.
For now, biomass is the short-term winner. It has the lower acquisition cost — anything from zero to a negative cost, and there are low-carbon credits through the RFS (which does not extend to natural gas) and the LCFS (which does embrace natgas, but the credits are less valuable because the emissions reductions are much lower).
What distinguishes the project in this case, at the end of the day, is not the feedstock — after all, landfill gas can be cleaned and compressed for the vehicle market today, and is done so as an everyday commercial business today.
The kicker is the Fischer Tropsch microchannel reactor technologies that enable the production of higher value liquids, and paraffin waxes which become an intermediate for higher value materials from candles to crayons, with electrical insulation and lubrication as additional apps. Grand View Research opined in 2015 that “the global paraffin wax market is expected to reach $8.02 billion by 2022. Growing demand for paraffin wax in manufacturing candles, cosmetics, and packaging is expected to increase market size over the next seven years. Increasing use of paraffin wax in flexible packaging as a good barrier against odor and gas transmission is likely to drive growth. Expansion of the food & beverage sector in various countries including China, India and Brazil is expected to drive industry growth over the upcoming period.”
The Bottom Line
Energy analysts will put a bigger green-light on Velocys’s valuation when steady-state operations have been achieved. By this is a milestone, and no doubt about it.